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"Take Stock" of Your Investing
by Amy Rauch Neilson
One of my husband's coworkers stopped me a few weeks ago as I was on my way into the welding and fabrication shop where they work.
"If you could recommend one book on investing -- something that a beginner like me would understand -- what would it be?" he asked.
I had to stop and think for a minute, as I have literally a hundred books on investing in my home office library. As I ran through the list of my favorites in my head, one kept coming to the forefront -- the latest version of Take Stock: A Roadmap to Profiting From Your First Walk Down Wall Street that I'd picked up just days earlier at the BetterInvesting, Inc. headquarters.
That, I decided, would be the one I'd recommend.
From my perspective, it's the one that most clearly and simply illustrates the NAIC principles of owning stock in good, solid, growing companies for the long haul. Unlike some of the other books for "beginning investors," Ellis's book is one that a novice can truly understand.
And it's what I'd call "one stop." It's no-nonsense and covers all the bases -- such as why common stocks are the most lucrative investment and not "over the head" of the beginning investor, how to decide if a company's stock is good enough quality to own, and how to analyze management's ability to maintain a company's winning track record. It also explains how to compare one company to another and manage your portfolio.
All that said, the latest edition begs this question:
Why a third edition? I asked.
"Never has there been a more important time to maintain the Nicholson principles," Ellis told me. "People seem to be straying from them. I wanted to make it simple to understand, for investors to get back to what Nicholson taught us and stick to it."
The More Things Change...
If the NAIC principles are truly timeless, what's so different about this edition?
"Time passes, and though the principles in the book are timeless, there are events that have occurred. The third edition gives us a chance to bring the book up to date in light of the changing complexion of our economy -- like the housing bubble that burst."
Ellis also delicately pointed out that the first edition of Take Stock had predicted that the dot.com bubble would indeed burst and the second edition noted that even though it had, those who stuck to the principles did just fine. "The principles haven't changed," he says.
What has changed are the circumstances surrounding the principles -- both personally, and in our culture at large.
First, though Ellis has long been a disciple of the NAIC principles, he says his understanding of them has evolved -- as has his application. "I now have a better understanding of why we apply them, and how to apply them better," he says.
And, secondly, there's a growing chasm between the "investor" and "herd" mentalities that Ellis points out in the third edition, including:
- NAIC investors buy shares of stock to own them.
The herd buys to sell.
"What distinguishes the NAIC investor from the herd mentality is that we own stock in a company until we want or need the money, the company begins to operate less successfully than it did when we bought it, or its potential return has diminished," Ellis says.
"Investing is buying shares and being a part-owner of a successful business.When the value of a company is based on the value of the business rather than the stock market's fluctuations -- that's what separates investors from the herd.
NAIC investors know that no matter what happens to the stock market, or whether the stock price goes up or down, companies can continue to earn, grow, and produce new products."
- NAIC investors understand the importance of "rational value."
"We know that the shares of stock we own have an absolute value, based on a company's assets and potential earning ability -- not just some value based on what the herd thinks they're worth," Ellis says. "The market price goes up and down over the short term, depending on what the herd does. We can wait for the price of a stock to come back to where it belongs -- and it will.
"True investors are people who buy shares because they want to own a company and what it represents," he says. "Our shares represent ownership in a company that is generating money. That's what investing is and how we must continue to view it."
Editor's note: Through October 25, 2010, StockCentral members who buy a copy of Toolkit 6 will get a copy of the third edition of Take Stock -- a $29.99 value -- free! Take Stock is the perfect holiday gift for the beginning or advanced investor. But don't wait -- this offer won't be repeated!
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