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Reviews of the Best Books on Finance and Money

This page aims to give a detailed review of the most popular books on finance and money.

The Zulu Principle by Jim Slater

Jim Slater is an investment guru, who while bedridden after a viral illness, started to analyse shares - he was motivated by the fear that he would not be able to work again and was looking for an alternative income. In the 1960's, he published an article in The Sunday Telegraph, outlining the bones of his approach, and The Zulu Principle is essentially an expansion of those initial ideas.

His ideas are a modification of the ideas of great American investment guru Benjamin Graham, but where Graham looks purely to find Value shares, Slater is looking for growth shares, but underpins this search with some of Graham's criteria to protect his downside.

The book is lucidly written and easy to follow. I have tried out his main method of selecting shares - looking for shares with a high PEG factor, (P/E ratio divided by estimated growth rate in earnings per share), over the last five years. My conclusion is that it is very hard to find shares that meet the criteria (some years you don't find any at all, and usually there is just one or two), but when you do, you make a very decent profit. This method suits people who are patient and happy to stay away from the market when there is nothing worth buying (one of the great downfalls of investors is a tendency to over-trade).

The book also has a fascinating chapter on Creative Accounting - the tricks whereby companies try to flatter their accounts and persuade investors they are doing better than they really are. Given that this is the biggest risk for investors, the book is worth buying just for that chapter alone. He also goes to great lengths to explain the cashflow statement and the importance of liquidity - again something fundamental, as companies with poor cashflow inevitably do badly.

I would definitely recommend the book - it's one of the best primers on investing on the market.

The Millionaire Next Door by Thomas J. Stanley and William D. Danko

The Millionaire Next Door is an attempt to analyse the traits of millionaires and determine why these people become millionaires when so many other equally talented people don't.

The authors produce a formula to determine whether people are PAWs (Prodigious Accumulators of Wealth), AAWs (Average Accumulators of Wealth) or UAWs (Under Achievers of Wealth), based on age and income, and of course the reader can do the calculation to determine where they are on the net worth scale.

The book then looks closely at the habits of PAWs ands UAWs based on detailed interviews conducted with people in these groups. Some of this is insightful and amusing, and some of it is tedious (they devote an entire chapter on cars and how people buy them, going into what I felt was un-necessary detail).

The most interesting finding was that the real millionaires are modest, unassuming people who don't flaunt their wealth. They don't live in the best neighbourhoods or wear the most expensive clothes - and their millionaire status is because they don't do these things. On the other hand the “Big Hat, No Cattle” people, (a phrase this book coins), tend to spend all their money on the badges of wealth and as a result have very little net worth.

Parents will be most interested in the chapter on what the authors call “Economic Outpatient Care”, which is about how the parents who subsidise their children, actually weaken their abilities to stand on their own feet and accrue any wealth of their own, with the result that the child flounders badly after the deaths of their parents. The book also has some helpful insights on how to divide your wealth among your children without resulting quarrels about the will, and how to avoid quarrels among your children over the different help they get from the parent.

All-in all, I think this is a book worth reading - the start of the book contains some valuable insights into the habits of millionaires, and though I flagged a bit in the middle during the interminable chapter on cars, I perked up at the end when they came to family finance.

Selecting Shares That Perform by Richard Koch

This book is subtitled “10 ways to beat the index” and Richard Koch outlines ten different approaches to investing, from Growth strategies to Value investing to buying Warrants.

The chief insight in his book is that there is no one magic bullet approach: Often a strategy depends on the personalty and skills of the person trying to apply it. If you are not good at detail and analytics for instance, it's no good trying Value Investing. No matter how good the strategy is, you won't have the skills to make it work for you. Similarly, if you are risk-averse, you should avoid Emerging Markets and Warrants.

He begins the book with an overview of investing and then goes on to discuss the importance of record keeping and risk management, with ten rules to stop you from losing money. There is then a quiz to take, to decide what type of investing strategy would suit your personality.

The second part of the book outlines the ten strategies in detail, and you can either read all of them, or simply concentrate on the strategies that the quiz results recommended you try.

I loved this book. It was intelligently written, and I liked the emphasis at the beginning on making sure you don't lose money (it calls to mind a saying attributed to Warren Buffet, where he stated that the First Rule of Investing is “Don't Lose Money” and the Second Rule is “Don't forget the first rule”). The strategies are all clearly explained with plenty of examples.

If you are new to investing, I highly recommend this book.

The Intelligent Investor by Benjamin Graham

This book was written by Benjamin Graham in 1949, and is one of the classics of the investing world.

Graham was a professor at Columbia University, and made a ground breaking study of investments, pioneering the style of investing known as “Value Investment”. One of his students was the young Warren Buffett, who in his preface to The Intelligent Investor wrote:

I read the first edition of this book early in 1950, when I was nineteen. I thought it was by far the best book about investment ever written. I still think it is.

The book covers the difference between investment and speculation, a history of the stock market since 1871, how inflation affects investment, and how to build a defensive portfolio.

As expected from an academic, the book is often quite dense and detailed, but I would recommend the reader to persevere. Graham often is quite sceptical about Wall-Street types, and quite pessimistic about the ways in which corporations try to mislead shareholders about how well the really are doing.

I would recommend this book to anyone serious about investment. It's analytical and sceptical approach is of real value in these days of cheerleading of stocks, and the reader will benefit from learning how to avoid pitfalls and how to cut through the marketing hype to find stocks of value.

Thrifty Ways for Modern Days by Martin Lewis

Martin Lewis is the webmaster of the site MoneySavingExpert.com.

The book evolved from a discussion on the MoneySavingExpert forums in 2004 about “Could we live like during World War II”, and then became a discussion board on the site called the “Old-Style Board” which “morphed into a mix of Money Saving and anti-consumerism. Many of the contributions came from “Old-Stylers” - people from the older generation who wanted to pass down tips to the youngsters.

The book is divided into eight chapters, which are all about living below your means. The chapter on cleaning for instance begins with “The Old-Style Top Five Cleaners” - which includes cola (apparently flat cola is absolutely brilliant for shifting burnt-on food in saucepans - makes you wonder if we should really be drinking this stuff). He covers home maintenance and DIY, growing your own food, looking after clothes, even MoneySavingWeddings. The last chapter in the book has a section on “Old-Style recipes” - with loads of ideas for cheap nutritious meals.

This is definitely a book worth leafing through for ideas. No one can possibly try them all, but even trying some should help cut down on your expenditure.

Property Ladder: How to Make Pounds from Property by Sarah Beeny

This is the book that accompanies the UK Channel 4 series of the same name.

The book is all about how to make money either through renting out property or buying run-down property and doing it up to increase it's sale price. I really like this book - it is clearly laid out and takes the reader through how to research a market, how to establish a plan and budget, how to estimate builders costs, which property enhancements are worth it and which arn't, and how to make the sale.

I was intrigued at her notion of a ceiling price for particular streets, which means that some enhancements (eg loft conversions) will cost more than you will get back, as buyers won't pay more than the ceiling price for an area no matter how many enhancements the house has.

She also makes other sharp observations, such as there will always be students who want cheap accommodation, but you need to accept that students don't usually know how to maintain a house (as it's their first time away from their parents) and that you should therefore not be renting houses expensively finished to them.

I really recommend this book, it's the most clear-cut common-sense approach to property developing that I've seen on the market.

The Buy to Let Handbook by Tony Booth

Buy to Let has become big business in the UK. Some like to vilify landlords, but in truth they provide a valuable service to society in providing rental accommodation to students, young professionals and people relocating, that they otherwise wouldn't have (the alternative is going on a long waiting list for a dwindling supply of council houses).

This book is a comprehensive guide on how to invest and operate in this sector.

The author takes the reader through the entire process from deciding which market to target (eg students, young professionals or company lettings), and how to go about it.

This is quite a dry book - not exactly a “fun” read. However, the level of detail in it makes it a must-read if you are seriously considering going into this business.

He covers pretty much everything, from estimating running costs when the property is occupied and un-occupied, assessing the yield, tenancy agreements, all the health and safety regulations that must be complied with, how to assess tenants (obtaining bank and credit references etc) and the law of tenancy.

If you are seriously thinking of going into the landlord business, I recommend you get this book and read it from cover to cover several times before proceeding.

Find a Fortune by Lorne Spicer

Lorne Spicer is a television presenter who fronted British TV shows Cash in the Attic and Car Boot Challenge, and has been buying and selling things for 25 years.

Her book takes you through the details of how to buy and sell on Ebay and in car boot sales. She starts off with how to clear your house out, how to organise car boot sales, how to value the items and how to spot collectibles. Her chapter on collectibles is the most interesting in the book. For instance I had no idea that for most limited editions, there is about 10% overproduction, which is smashed by the manufacturer, to preserve the integrity of the “limited” nature of the item - but sometimes these survive and turn up at sales.

She also goes through how to value the items and how to sell on Ebay. The chapters on Ebay are good on the legal stuff, covering such things as VAT and import duty and the perils of selling or buying anything that has not been reported under the UK Treasure Act 1996. However, when it comes to the actual thrills, mechanics and difficulties of Ebay trading, I've read more vivid and informative accounts on blogs on the net written by actual traders.

That said, this is a useful book, and worth reading if you are thinking of Ebay trading, just to check there isn't any information you've missed. I'd recommend borrowing it up from the library or buying it cheap second-hand rather than new, as it is not one of those must have “keeper” books.

The Courage to be Rich by Suze Orman

Suze Orman is an American financial writer whose speciality is in exploring and understanding the way people's emotions and social situations affect how they handle their money.

Her book, The Courage to be Rich, starts off with a series of exercises designed to uncover how people feel about money, what they learnt about it in childhood, and how these emotions affect how they handle money now. The book is rich in anecdotes illustrating her points: eg the story of Mark, who feels he has to prove he is not poor by buying leaving big tips and buying more rounds in the pub than anyone else.

She then goes on to talk about how to resolve these issues. She talks about how getting rid of clutter in your house. I was sceptical on this point till someone close to me starting sorting out their old files and found a load of dividend cheques they had simply put away, intending to deal with them later, and then forgotten about them. In this sense she's right - clutter means that we lose track of how much we are buying and lose control of the minor things we need to do to keep our finances running smoothly.

The next exercise involves looking at spending patterns and how we are seduced into buying premium this and that. She also deals with the issue of instant gratification, and how we find it hard to wait for things.

The chapters on Love and Money mark this book out as different to the other financial books on the market. She believes that incompatibility on how to handle money, and arguments over money are what breaks couples up (they usually don't check that they match in this area when they get together). She goes into quite a bit of detail on divorce, and what people's rights are and how they should cope with it financially.

I would recommend this book to people who've read loads of financial books and still haven't got on top of their money. The psychological insights might just help them. I would also recommend this book to people who are going through a divorce, as I think this is the only financial book on the market dealing with these issues.

The Money Diet: Step-by-Step Guide to Saving Money by Martin Lewis

This is another book by Martin Lewis who runs the website MoneySavingExpert.com.

It's one of the better books on the market on how to budget and spend less. For me, the best chapters in the book were the ones on shopping, where he covers not just the psychology of shopping from the consumer's point of view, but gives an insight into how the retailers think.

Of particular interest is his list of “What Shops really mean”. Here's what he has to say on “Three for the Price of Two”:

“Three for the Price of Two” Meaning: A third off. Why it's cunning: You need to spend double what you would have spent. Though they are discounting, they are moving more volume. Also they've sewn up all your purchasing requirements for the forseeable future. In other words, if you drink one orange juice carton a week, it's guaranteed your next three weeks' worth is bought with it. Similar offers on this theme include “buy one, get second one half price” and “buy two for £5”

He has similar explanations for the other offers you get at supermarkets. The key of course to beating the supermarkets at their own game is to be completely aware what they are doing, and take advantage of it. eg Three for the Price of Two offer on toilet rolls is probably a good deal, as you will most certainly be using said rolls. The same deal on punnets of peaches is bad - it's likely you won't get round to eating the extra peaches you've bought before they go off.

He also has some interesting things to say on mortgages, credit cards, debt and insurance.

I recommend this book - it's one of the more insightful of the budgeting books on the market.

You and Your Money by Alvin Hall

Alvin Hall presented a series of Finance programs on Britain's Channel 4.

It differs from the usual money books in that it focuses exclusively on how money affects relationships and how relationships affect money.

The book systematically devotes a chapter each to all the major relationships in our lives - with our parents, siblings, work colleagues, friends, partner and children. He illustrates all his insights with anecdotes and concludes each chapter with advice.

The premise of the book is that all our behaviour is affected by our relationships, including how we manage money, which is why often seemlingly bright capable people mess up in the money department.

I found this book fascinating and insightful, particularly the chapter on siblings and how childhood roles and sibling rivalry affects money behaviour. I expect others will find other chapters meaningful, depending on which set of relationships has caused them the most psychological pain over time.

I definitely recommend getting this book and reading it several times through. As the ancient Greeks used to say “know thyself”. You can't really get to grips with how and why you behave financially without knowing what is driving you, and this book definitely helps in that department.

First Time Investor: The Complete Guide to Buying, Owning and Selling Shares by Debbie Harrison

This is a great chunky book - and as the size of the book implies, it covers all aspects of investing in some detail.

It begins with a brief history of the stock market, and then goes on to explain the functions of the stock market, how it is regulated and how it works.

The author then goes on to explain in detail all the different asset classes, from equities, to bonds to derivatives to warrants. There is a section on unit trusts and investment trusts, ISAs, pensions and annuities. She explains how to decide whether to go for the managed fund option or whether to select investments yourself. She discusses risk management and asset allocation. She goes on to explain how to choose a stockbroker, and the difference between an advised service and execution-only services. She explains the mechanics of buying and selling shares, the tax element of it and shareholders rights. She even covers performance monitoring and how to read balance sheets and profit and loss accounts.

In other words this book is a very thorough reference book that assumes the reader is a novice and explains everything from first principles in a clear and lucid manner.

If you are confused about how the markets actually work and need an explanation of all the terms, then this is the book for you.

Ordinary People, Extraordinary Wealth: The 8 Secrets of How 5000 Ordinary Americans Became Successful Investors - and How You Can Too by Ric Edelman

Ric Edelman used to feature a lot on Oprah's show as the finance guru.

I have a confession to make - never have I had such a negative reaction to a financial book before! This is down to his first two secrets of wealth - which were don't pay off your mortgage and don't diversify your investments! Needless to say I think this is bunk.

I'm a big fan of paying off debt, including mortgage debt. Edelman's whole argument for saying that you shouldn't pay off your mortgage is that he thinks you can get a better return investing the money elsewhere. This is a dubious point. Yes, in the 1980's and 1990's you got higher returns from the stock-market, but the period from 1960 to 1980 was flat, and we are currently in another flat period (the FT100 index is about where it was in 1999). Your home is also not just an investment, it is your shelter. Your priority should be to secure it before you do anything else. The only time you should hold off paying off mortgage debt is when you have no emergency savings. Always build up about 6 months emergency savings before you start paying off debt or do anything else.

I disagree with his point on not diversifying too. The future is an enigma, and it's not always certain which investments will do well. Never put all your eggs in one basket. People who put all their money in stocks in 1998 will be sitting on a loss in real terms (i.e. after inflation). People who diversified and held some bonds and some gold as well will have done OK, or even made an overall profit.

Having flamed him, I will concede that the book has a couple of good points in it. He is right in that you should discuss money with your family and explain how money works to your children, as well as watch in case your parents are struggling. He is also correct that you shouldn't obsess about daily market movements - it's just noise and volatility and you can be panicked into doing the wrong thing by being infected by herd emotion.

I'm afraid I won't be recommending this book, for the reasons given above.


Book Review | Finance


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