The Amateur Financier

I figured, for my first book review of 2011, I would start with the first investing book I ever read.  It makes me feel all nostalgic; it’s kind of amazing how much I’ve learned in the time since I first read Investing For Dummies way back before I even started my blog.  At the time, it helped me understand some of the investment options that exist out there, and made me rethink some of the advice I had gotten before I started to do my own independent research.  So, going back to it now, is it still worth a read through?  Let’s find out!

Summary

The book is divided into several sections.  The first section covers investing fundamentals, usually a good start when you’re preparing to invest.  Chapter one surveys some of the investment options that exist, including stocks, real estate, and small businesses, the main investments covered in the book.  It also provides several types of investments to avoid.  Chapter two covers the risks and rewards inherent in investing, covering issues like possibility of an investment losing money and the risks posed by inflation.  Chapter three discusses other financial tasks you need to complete before you start to invest, like building an emergency fund, managing your taxes, and getting insurance.

The second part of the book covers stock and bond investing.  Chapter four provides a brief crash course in how the stock and bond markets work and how interest rates, inflation, and the Federal Reserve can affect their performances.  Chapter five covers stocks and stock investing, covering ways to invest in stocks (from individual stocks to mutual funds) and some basics of valuing stocks.  It also provides some historical periods with stock market bubbles and warns against some particularly hazardous stock practices like day trading and buying penny stocks.  Chapter six continues to evaluate stocks for possible investing, providing suggestions on how to read annual reports and how to purchase stocks.

Chapter seven looks at another major investment choice, bonds and lending investments.  It covers the various types of bonds that exist, and how you can go about buying them.  Chapter eight gets into mutual funds, covering what they are, and the reasons for investing via mutual funds.  It also provides a few lists of Mr. Tyson’s (the book’s author) favorite mutual funds in various categories.  Chapter nine finishes out this section of the book by giving advice on choosing the brokerage firm through which you will invest.

The third section of the book gets into real estate and how to invest in it.  Chapter ten starts with the basics of home ownership as an investment in real estate.  After discussing the issue of renting vs. buying, the chapter lays out how to choose a home and the research that needs to be done before purchase.  Chapter eleven covers more on how to invest in real estate, covering a few options like REITs, residential, and commercial real estate (and a few poor ones like time shares).  It also offers methods of valuing a potential investment property to determine its profitability.  The real estate section of the book finishes with a chapter on financing real estate investments, explaining the difference between fixed and adjustable mortgages, and other means of financing.

The fourth part of the book is all about starting and running a small business.  Chapter thirteen is about evaluating your entrepreneurial ambitions, determining whether you would good at running your own business.  It provides a personality test of sorts to see if you would be a good fit to run your own business, and provides some of the issues to consider if you continue with your entrepreneurial ambitions.

The next two chapters cover different methods of getting into the world of business.  Chapter fourteen covers what you need to know to start your own small business, from financing the business to determining the best legal structure to choose.  Chapter fifteen evaluates a different tact, purchasing a small business from someone else.  It covers how a business should be evaluated, and what traits make a business worth buying.

The fifth section of book is a series of short chapters covering various investing resources available to would-be investors.  Chapter sixteen provides some basic advice on how to choose good sources of information, chapter seventeen looks into magazines, newspapers, radio, and television, chapter eighteen covers investment books, and chapter nineteen looks into computer resources, both online and off.  All of the chapters include a few of Tyson’s favorite resources in that area, and most have a sidebar or two examining bad sources of advice (a rather long, disapproving sidebar on the Motley Fool website is included in chapter nineteen, for example)

The book ends, as all ‘For Dummies’ books end, with a ‘Part of Tens’ section that includes several lists of ten things the author wishes to share.  Chapter twenty covers ten obstacles (mostly mental) that we need to overcome in order to succeed at investing, from being too trusting of authority to being overconfident in our skills.  Chapter twenty-one covers ten things to consider when you are selling an investment, a subject many investment guides fail to delve into that deeply.  Chapter twenty-two finishes the book on a timely (or at least, timely when I first read it) note on investing in a down market, finishing the book with a note to talk with the people who care about you.

Pros

As with all the books in the ‘For Dummies’ series, this book greatly simplifies its subject matter, helping to make the often times difficult world of investing much easier to understand.  It provides a wide introduction to many different investments, and serves as a guide to finding further information if that’s not enough.  It also goes out of its way to steer you away from potentially risky investments, which is always helpful in a beginning investment book.

Cons

As with any book that covers a wide range of topics, there is only so much information that is provided on each subject, so further research is needed before you invest.  Some topics covered in the book seem a bit out of place (particularly the section on starting a small business), giving the book an odd assortment of material.  Tyson also is sometimes a bit abrasive in his commentary; there is a fair chance that you will disagree with his commentary at some point in the book (particularly with some of the investments that he condemns, like precious metals and collectibles).

Overall

Investing For Dummies is a pretty decent introduction to a variety of investing concepts.  The sheer range of the subject it tries to cover, though, limits the amount of detail that can be covered, so the book is bit light at parts.  If you’re looking to invest in stocks, bonds and mutual funds online (and who isn’t investing online nowadays?), I actually prefer Investing Online for Dummies both for the information covered and the tone of the book, but any book in ‘For Dummies’ that covers your desired subject will be very helpful.