Adams Media, ISBN: 978-1598698299
Third Edition Copyright September 2009, Paperback, 304 Pages
The Everything Investing Book satisfactorily covers virtually “everything” a neophyte, intermediate, and potentially advanced investor – whether conservative, moderate or aggressive – is required to know to embark on a sound investment journey. The book educates investors on the fundamentals of investment vehicles, the multiplicity of risks, and offers applicable strategies, accessible advice and privy to investment terms.
The book excels in rigorous detail. Eight major risk classifications (Stock Specific Risk, Passivity Risk, Inflation Rate Risk, Market Risk, Credit Risk, Currency Risk, Interest Rate Risk, and Economic Risk) are discussed, and ten stock categories are examined: Blue-Chip, Growth, Cyclical, Defensive, Value, Income, Speculative, Common, Preferred, and Socially Responsible Investments (SRI).
Eighteen mutual fund categories (Index Funds, Growth Funds, Income Funds, Aggressive Growth Funds, Combination Growth and Income Funds, Value Funds, Sector Funds, Specialty Funds, International Funds, Global Funds, Balanced Funds, Bond Funds, Municipal Bond Funds, US Government Bond Funds, Corporate Bond Funds, and Large-Cap, Mid-Cap, and Small-Cap Funds) are tackled, whilst six basic types of bonds are addressed: US Treasury Securities, Municipal Bonds, Zero-Coupon Bonds, Corporate Bonds, High-Yield Bonds, and Mortgage-Backed Securities. Cagan also explored important economic indicators such as the Producer Price Index (PPI), Housing Starts Indicator, Unemployment Index, and Business Inventories.
The book contains remarkable heuristics that simplify investment analyses and decisions. Investors can surmise that shrinking dividends indicate a company’s plans for expansion, whilst small or nonexistent dividends possibly mean the company is poised for growth. Investors can expect to observe trends such as the utilities and services sectors performing well during an economic downturn, while seeing technology, industrial and cyclicals sectors flourishing as the downturn transitions into a full recession.
To outpace inflation, stocks are the best investments whilst money-market funds are the least effective; As a conservative investor, blue chip stocks and large-cap funds are preferable and safer investments, and one would most probably opt for the buy-and-hold strategy; For an investor whose primary investment goal is generating income, income stocks that pay higher dividends represent the appropriate recourse; As one ages, one’s asset allocation strategy may shift from growth toward wealth preservation; Bond prices are inversely correlated to interest rates; Rates drive return in the currencies markets; and passively managed funds mean lower expenses.
Readers’ acclimatization to the investment sphere can be expedited with close study of investment terms in the book. Being vigilant of “style drifts” is crucial. It is equally essential to develop dexterity in interpreting stock tables and understanding related terminology of “high-low”, “yield”, “close”, “net change” and more. Understanding “laddering” equips one with yet another strategy to invest in the bond market. Investors stand to gain from understanding Dividend Reinvestment Plans (DRIPs), Long-Term Equity Anticipation Securities (LEAPS), “Growth At A Reasonable Price” (GARP), and “sector rotation”.
Awareness of alternatives for investment terms will minimize confusion, such as recognizing that “capital appreciation funds” is a substitute phrase for “aggressive growth funds”. Learning to distinguish between a loaded fund, a no-load fund and a loaded no-load fund, understanding the differences between the yield to maturity and the current yield, and being knowledgeable of the constituents of for example, asset categories of fixed-income investments and cash will make life easier for the investor.
Living up to its title, the book delivers smart strategies, both basic, intermediate and advanced, for the eager learner. Stop-loss orders and trailing stops can be used to lock in profits and limit losses; Stock-picking techniques of technical analysis and fundamental analysis are indispensable; The dollar-cost averaging strategy is an option in mutual fund investing. There are diversification strategies such as diversifying over asset classes, and there are asset allocation strategies of the active strategy versus a stable policy over time. In determining securities to comprise one’s portfolio, the investor ought to apply the investment tenets of knowing risk levels, having a fixed time horizon, employing diversification, and having set investment goals. For risk takers, strategies such as short selling, margin buying and hedging are proferred.
The book provides very feasible action plans. Cagan suggested that investors ought to capitalize on the availability of resources, for example by conducting online research on the SEC website in a section called EDGAR (Electronic Data Gathering, Analysis, and Retrieval), or scrutinizing Investment Dealers’ Digest to locate all SEC-registered IPOs. Investors learn to make informed decisions by reviewing companies’ Earnings Per Share (EPS), Price-To-Earnings (P/E) ratio, book value per share, price volatility, shares outstanding, and total return.
Readers are presented with options such as the opportunity to buy treasury bonds directly from the U.S. Treasury Department through the TreasuryDirect service, or opt for a Real Estate Investment Trust (REIT) if venturing into real estate investment as an owner or landlord remains premature. The investor is advised to analyze for example, a mutual fund’s performance by perusing its annual or semiannual report, examining its fund holdings section, and comparing the fund to a specific and relevant index.
Cagan dispensed distinctly pragmatic investment advice, a particularly remarkable one constitutes the importance of not investing into a mutual fund immediately before its yearly capital gains distribution to prevent being taxed as if one owned the fund for the full year. Owning multiple funds with identical objectives was similarly said to be a waste of investment monies. The tyro real estate investor keen on owning physical properties is directed to either small rental properties, or a house that requires fixing. Cagan emphasized the importance of studying the economy, for economically-savvy investors are better equipped to handle impending changes in the economy. The reader is encouraged to continuously evaluate one’s investment portfolio and make apt adjustments to make sure investment needs are optimally met.
Cagan even gave the seemingly paradoxical advice of advantages for investing in taxable bonds over nontaxable bonds, the apparent common-sensical importance of independent research, of striking a balance between risk and return, the pitfalls of impulse investing, and to beware of penny stocks. Certain advice is aptly geared to the occasionally overly ambitious fledgling investor, who is dissuaded from market timing and from investing in international specialized funds.
The book exceeds expectations. Apart from including a comprehensive table detailing the NASDAQ fifth letter codes (of five-letter stock symbols) and their associated meaning, Cagan encloses at the beginning of the book a 10-question test for the reader to measure his or her risk tolerance levels to construct a personal investor profile. The book contains incredible statistics, of for example the approximately 1.5 million bonds in the municipal bond market. Interestingly, Cagan dedicated a chapter to risk lovers by introducing the notoriously “riskiest” investment in existence: Futures contracts, along with other alternative investments such as IPOs, commodities, currencies, and options. By conscientiously including information on tax deductible investment-related expenses, the author is essentially equipping the reader’s toolkit with an instantly actionable strategy that inches one closer to securing one’s financial future.