WHY STOCKS GO UP AND DOWN
REVIEW: "This book will get you started in understanding stocks and bonds, but
you will also find yourself referring back to it again and again as your knowledge
expands through further study. The authors introduce the most basic concepts
and develop them right up through the point of making an investment decision.
Their coverage of the topic is encyclopedic, so their book can fill in gaps even for
– Martin Fridson (Amazon review)
Why Stocks Go Up and Down is devoted to educating readers on the fundamentals of investing. Investing in stocks without an understanding of fundamental analysis and stock valuation is little more than gambling. The authors are experienced portfolio managers who have taught investments to both individual and institutional investors for many years. We assume no prior knowledge of investing, but because the book was initially written for people in the investment industry, we go into far more detail than other investment books.
Part 1 introduces the basic concept of business ownership and how to analyze financial statements, which relate directly to the value of the company. Part 1 also covers the process of “going public”, the concept of dilution, and the difference between primary and secondary stock offerings.
Part 2 explores a company’s use of bonds and preferred stock (which is quite different from common stock). To understand a company and its stock price behavior, it is important to understand all the securities a company can use to raise capital. Along with common stock, bonds and preferred stocks are important components of most investors’ portfolios.
Part 3 explains more fully how income statements and balance sheets relate to stock prices. When you understand concepts such as write-offs, and the difference between earnings and cash flow, you will be better able to understand stock price behavior.
Part 4 discusses stock valuation methods. This is the part that interests most investors, but readers will get more from Part 4 by reading Parts 1-3 first. The final chapter is an investment analysis of a publicly-traded company that draws on many of the concepts covered in the book, and takes readers through the analytical process of a professional investment analyst.
Our website includes the Table of Contents for the book, which provides a brief description of each of the 19 chapters of the book. The “Must Read?” section of the website is a quiz (answers provided). If you cannot answer most of the questions, you will benefit from Why Stocks Go Up and Down. Also included is our blog, where we periodically post market commentary, additional education material, and recommended readings. We also respond to frequently asked questions we receive.
We wish you good fortune on your investment journey.
William H. Pike, CFA
Patrick C. Gregory, CFA