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Advice - GoldStart Book Reviews

These are the favourite investment books of the GoldStart team - all of which are fascinating reads. We thoroughly recommend reading one and seeing if it affects how you think. These are all on our top ten list.

Contrarian Investment Strategies, Encyclopaedia of Chart Patterns, Secrets for Investing in Bull and Bear Markets, How the Stock Market Really Works: The Guerrilla Investor's Secret Handbook, Warren Buffett Speaks: Wit and Wisdom from the World's Greatest Investor, Bull's Eye Investing: Targeting Real Returns in a Smoke and Mirrors Market, The Armchair Millionaire, Keys To Reading An Annual Report, Against The Gods, The Seven Habits of Highly Effective People

Contrarian Investment Strategies: The Next Generation

Beat The Market By Going Against The Crowd

by David Dreman

Contrarian Investment Strategies: The Next Generation is another excellent investing book by David Dreman.

Dreman mentions the stock market went nowhere for the seventeen years prior to 1982. This is a reality that many "investors" today can't imagine. Dreman says, "Before all else, a successful strategy requires a strong defense: it must preserve your capital."

Preservation of Capital is a key factor that many ride-the-hot-IPO investors miss. Many investors are seeking excitement in the "red" room of investing. In Contrarian Investment Strategies, Dreman uses a hypothetical example of a casino with two rooms.

One room, the "green" room lacks excitement, but stacks the chances of success in favor of the gambler. Few people are in the green room placing their bets, and the casino manager says it's a good thing, too, because the casino would go broke if people participated.

The other room is active and exciting, but in the "red" room, the odds are stacked in favor of the casino and people tend to lose. Most investors spend their time in the "red" room of investment because they are seeking excitement. Long-term, this fails to build wealth. Dreman introduces investors to the green room of investing-- contrarian investing.

Dreman shows that technical analysis doesn't work. (So, what else is new? We knew this.) But, then Dreman goes on to examine the performance of professional money managers, most of whom use fundamental analysis.

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Encyclopaedia of Chart Patterns

By Thomas Bulkowski

Whether you believe in the value of charts or not, there is no doubt that patterns and events recur throughout the history of the markets and of individual shares.  Everyone should have an understanding of the signals that chartists use.  There are now so many people relying on this as a contributor to their investment strategies that the signals themselves are self-fulfilling.

I have read many books from the library on charts, but this is book is the one which it is essential to own - even more so than Edwards & MacGee.  One of the main dangers with charting is imagination - trying so hard to see patterns that you stretch the chart to fit what you would like to see. Bulkowski has analysed chart patterns using a computer, which means that he had to define the patterns with complete clarity.  For each pattern he has a full definition which will leave you in no doubt as to whether your stock chart fits the pattern or not. If it does then he has precise statistics as to how often it works or fails, and Trading Tactics listing the various ways of using such a pattern once you have found it.

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Secrets for Investing in Bull and Bear Markets

By Stan Weinstein

This book teaches very basics that every investor should know. Stan has done an excellent job in driving down the concepts. Even though the book is old, I did not have any trouble in understanding and applying the rules to current market. This book is ideal for lots of people who do not have enough time to read all news letters and keep up to date with everything going on in the markets.

The techniques are based on charts and some technical analysis.  This book can help you make a lot of money whatever way the market is moving.  By managing risk you can make great money in the most volatile markets.  This book could really change the way you think about investing.

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How the Stock Market Really Works, 3rd Edition

By The Guerilla Investor's Secret Handbook

Whether you are new to investing or already have a share portfolio, this intelligent urban warrior's handbook will guide you safely through the often puzzling world of investing and will provide you with the strategies to compete to win. Given the fact that the majority of fund managers underperform the indices, it may be possible for intelligent private investors to do as well, or better, on their own by using winning guerilla tactics.

Private investors can make huge gains over the long term as long as they maximize their advantages.

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Against The Gods

The Remarkable Story of Risk

By Peter L. Bernstein

Against The Gods by Peter Bernstein is a wonderful, historical account of mankind's intellectual understanding of risk. The book follows the intellectual development of risk management and how people throughout the centuries have changed their views of what constitutes risk and how investment risk can be mitigated.

Anyone who likes the history of mathematics or investment will probably enjoy this book. It is scholarly, but also fun-to-read and interesting. It will help investors think about how they, themselves, interpret "risk." And, it gives us insight into how some of the world's greatest minds have viewed risk.

The book's cover is a reproduction of Rembrandt's Storm on the Sea of Galilee, which depicts a group of people fighting to maintain control of their sailing ship (or, just trying to hang on!) while their craft is tossed about by the storm.

Long ago, people felt they were at the mercy of arbitrary gods or forces, which could act at whim, either to support a person or defeat him. The gods played dice with us mere mortals. So, there was no point in contemplating risk management. Just as the storm tosses the wooden ship about, so, too, would our lives and destinies be determined by fate.

Of course, people of ancient times played games of chance and wagered. But, it was not until years later that many thinkers, philosophers, mathematicians, and merchants realized that the study of simple children's games offered great lessons for adults-especially relating to financial decision making.

People learned that they could evaluate risk and take steps to mitigate it. They no longer were at the mercy of the gods. They could control their own fate. They could minimize risk in their endeavors. They could evaluate probabilities and chance.

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Keys To Reading An Annual Report

50 Key Concepts to help you understand the facts, and distinguish them from promotional puffery in an annual report (Barron's Business Keys)

by George Thomas Friedlob, Ph.D and Ralph E. Welton, Ph.D.

Keys To Reading An Annual Report by George Thomas Friedlob and Ralph E. Welton is a wonderful, little book for all investors. Each of the fifty, three-or-four-page sections covers a key concept that investors should understand when reading a public company's annual report and other financial statements.  Admittedly it is a little US-centric but this really didn't detract from the analysis.  The differences between UK and US accounting boils down to a couple of terms.

Keys To Reading An Annual Report is no substitute for a complete text about financial statement analysis,  but Keys To Reading An Annual Report is an excellent first read for new investors who are learning to understand financial statements. And, experienced readers of annual reports will probably find Keys To Reading An Annual Report a useful review.

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Warren Buffett Speaks:  Wit and Wisdom from the World's Greatest Investor

By Warren Buffett

Warren Buffett is a god.  An investor who purchased $10,000 of Berkshire Hathaway stock when Warren Buffett took over, would have seen his shares climb in value to more than $51 million by the end of the 1990's. This book chronicles some of the things that have made Berkshire so successful, including a shareholder-oriented management, a diversified collection of fine businesses, and little or no debt.

In this wise and winning collection of quotes, writings, and favorite sayings, Warren Buffett Speaks on diverse subjects such as investing, running a business, honesty, school teaching, paying taxes, and much, much more. Assembled by bestselling author Janet Lowe - and including a wealth of previously unpublished material - this unprecedented peek into the financial genius's wildly profitable philosophy is often surprising, always intriguing, and sparked throughout by Buffett's unique combination of savvy business smarts and wry wit. Here's just a sample of what you'll find inside: "Wall Street is the only place that people ride to work in a Rolls Royce to get advice from those who take the subway." "All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies." "Maybe grapes from a little eight acre vineyard in France are really the best in the world, but I always had a suspicion that about 99 percent of it is in the telling and about 1 percent of it is in the drinking." "I want to explain my mistakes. This means I do only the things I completely understand." "In the end, I always believe my eyes rather than anything else.".  Everyone should read this book.

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Bull's Eye Investing: Targeting Real Returns in a Smoke and Mirrors Market

By John Mauldin

The key to successful investing today is knowing where the markets and economy are going, not where they have been, and focusing on absolute returns--real profits in your pocket. You, the contemporary investor, instinctively know that the markets of today--and the forces that drive them--are quite different than those of past decades. Your intuition tells you that if you are to be successful in the future, you must adjust your investment strategy to reflect the new economic realities. But what strategies? What adjustments? Where can you turn for reality-based answers?

In the positive and forward-thinking Bull's Eye Investing: Targeting Real Returns in a Smoke and Mirrors Market, financial expert John Mauldin makes a powerful case regarding the future direction of the markets and what you must do to be successful in them. Mauldin lays a solid foundation for his argument by examining six major (and very different) ways to look at the stock market as well as the numerous ways Wall Street tries to entice unknowing investors to keep buying overvalued products. Marshalling a huge array of facts and sources, Mauldin looks at these and other issues, including the effects of value, risk, market psychology, and demographics on your potential investments. He details a new approach to investing that will allow you to successfully adjust to the new reality of investing.

In a straightforward and easy-to-understand style, Mauldin helps you understand why traditional stock portfolios shouldn't be your primary investment vehicle in the coming years, and how absolute return vehicles, such as hedge funds (Chapters 20-22), specific types of bonds, and certain types of value-oriented stocks (Chapters 16-18), and investments can help you control risk, while carefully and methodically growing your investments over the next decade.

Helping you think outside of the Wall Street box, Bull's Eye Investing focuses on finding value and controlling risk, while working with trends (which Mauldin forecasts for you) rather than against them. It will show you why investors must focus on absolute returns instead of relative returns, as well as how research and homework will be rewarded--rather than blind trust in an ever-spiraling market.

Good markets are followed by bad markets, which are again followed by good markets. While no one can predict exactly when these markets will begin or end, there's a pretty good chance that this cycle will continue to repeat itself. As an investor, success hinges on your understanding of these ever-changing economic and investment cycles--and your response to them. Bull's Eye Investing can help you make the most of these trends, by showing you how to target your investments toward where the markets will be, not where they have been.

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The Armchair Millionaire

by Lewis Schiff and Douglas Gerlach

For investors looking for a simple, yet effective, investment strategy, The Armchair Millionaire by Lewis Schiff and Douglas Gerlach provides just such a strategy. Schiff and Gerlach tell us that any investment strategy implemented by most individual investors should be automatic. It should not be complex, nor time consuming. Yet, the strategy must be effective in building wealth over the long run.

Schiff and Gerlach write: "We call our program the Armchair Investing Strategy. While it includes investing methods that have been around, and have been used successfully for years, they have never been brought together into one comprehensive strategy."

The above statement is inaccurate, for "The Armchair Investing Strategy" is simply a passive investment strategy utilizing the power of compounding, paying yourself first, dollar cost averaging, investing in the overall stock market via low-cost index funds, and taking full advantage of tax-deferred retirement plans. Such a comprehensive investment strategy has been well-known for quite some time. The best selling book, The Wealthy Barber, was one book to propound just such a strategy.

However, while Schiff and Gerlach weren't the first to integrate such a strategy, the advice in The Armchair Millionaire is solid. Schiff and Gerlach write that even the legendary investor Warren Buffett recommends index funds for 99% of investors. The solid grounding of such a strategy can't be denied.

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The Seven Habits of Highly Effective People

Restoring The Character Ethic

By Stephen R. Covey

OK, its not really an investment book but this is such a useful little read that I had to include it on my top ten.  If you are effective you can be successful, and if you are successful you can become rich.

Borrowing slightly from the concepts of Quantum Mechanics, The Seven Habits of Highly Effective People begins with the astute observation that people perceive the world differently, and because we view the world with our own unique "lens," it is difficult to separate the observation from the observer.

Covey says that we all have our own paradigm, which is our own map of how we perceive the world and how we think the world should be in our ideal view. Covey writes, "The way we see things is the source of the way we think and the way we act."

Covey goes on to explain: "...These paradigms are the source of our attitudes and behaviors. We cannot act with integrity outside of them. We simply cannot maintain wholeness if we talk and walk differently than we see. ... To try to change outward attitudes and behaviors does very little good in the long run if we fail to examine the basic paradigms from which those attitudes and behaviors flow."

So, part of achieving insight involves making a "paradigm shift" which causes us to perceive things differently. Covey notes that life threatening experiences or a major role change in a person's life can change a person's paradigm. Sometimes, just a little more knowledge might help us examine our paradigms.

Covey says that although many people want to be effective in their lives and achieve certain goals or dreams, they are unwilling to honestly examine their own paradigms. They are unwilling to look at the way they look at things.

Among his many examples, Covey tells the story of a manager who has taken management training classes and seminars and who is friendly to his employees. Yet, he doesn't feel that his employees have any loyalty toward him. He feels they lack independence and responsibility. If he took a day off, he believes his employees would goof off and stand around the water cooler talking all day.

Covey suggests the manager ask himself, "But is it possible that under that apparent disloyal behavior, these employees question whether I really act in their best interest? Do they feel like I'm treating them as mechanical objects? ..."

Our paradigms will affect how we interact with others, which in turn will affect how they interact with us. So, Covey argues, any effective self-help program must begin with an "inside-out" approach, rather than looking at our problems as "being out there" (an inside-out approach). We must start by examining our own character, paradigms, and motives.  Top stuff.

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