Tuesday, August 25, 2009

If you only want to buy one book and buy it cheaply

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1. Why I created this blog?
2. How am I going to operate this blog?

There are many great books competing for the best ever investment book title. But if you only want to buy one book and one book only, you have to buy “You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits” by Joel Greenblatt.

If you want to pick stocks not to buy an index, you believe you can explore the inefficiencies of the market. We all know the market is fairly efficient. Inefficiencies does happen but rarely. At each transaction table, one side is the buyer and the other is the seller. It would be arrogant to assume the seller is uninformed or stupid. In most circumstances, today's seller has followed the security longer and more closely than the buyer has, has previously been a buyer. How can you be sure you are buying a really undervalued stock from the seller?

This book is a practice guide. Joel wrote a book to teach us to buy in special situations in which undervaluation of securities happen by design. It is all about event driven investing: spin-off, merger, bankruptcy, restructure, recapitalization and LEAPs. The best part is that you don't need to finish the whole book before you can try your hands in the market. For example, once you finish reading chapter 3, you can begin to tiptoe into some spin-offs. After you get the handle on spin-offs, go on to another approach that interests you.

It is easy to read. The book's format is well organized: each chapter explains the how and why of investing in one particular corporate event, and then give examples to drive the point home. The examples are so interesting that I feel like reading a novel. The tone is lighthearted and endearing throughout with frequent hit the mark jokes .

And it is not long. Other great books, such as Ben Graham's “ The intelligent Investor” and “Security Analysis” are long and the reader needs some determination to finish them. It doesn't make them less great. Actually it is probably better to have a sound framework built this way. But remember our topic is you only want to buy one book and one book only. Only reading Ben's classic without “Common Stocks and Uncommon Profits” gives me a sense of incompleteness. And if you only finish one of the three, you'd better not to try your luck in the market without finish the other two.

Now let's talk about how to buy the book cheaply. Let's buy used. For example, a brand new “ You Can Be a Stock Market Genius” from www.Amazon.com costs $11.70 and a used one costs $1.97. Remember, new printing offers no new information. And a new edition may not be as good as the old one. The used book vendors at www.Amazon.com, www.pricegrabber.com and www.Alibris.com usually give very good indication of the condition of the books. I bought over 10 books from those sites and I found the conditions were usually better than my expectations. Last but not least, it is greener buying used!

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