Book Review: Reminiscences of A Stock Operator

This may be the best book ever written about trading stocks. Sure, it was written a hundred years or so ago, but the market behaves very similarly today. 

Jesse Livermore made millions in the glory years of early 20th century stock trading. He DID NOT use inside information either - just tape reading (the record of price movement).

Here's some major takeaways from the book:

1. Learn to read a chart (book doesn't discuss chart reading, just advises you to learn it)
2. Learn to trust your instincts, read the chart and ignore hot tips.
3. Learn that the market forms ideas that it is slow to abandon.
4. Learn to trade current events
5. Learn to recognize deceptive tricks (And this book has a lot of classic examples that still get used today!)

Wonderful writing really gives you a sense of early 20th century stock plungers: the bucket shops, the trips to Florida for fishing, catching the train, going broke in Boston and starting over in Cleveland, the crusty characters at the local stock brokerages and more. 

What Investors Can Learn From Accounting Standards

Here's a way to get a little more insight when looking at a company's financials.

One size of analysis does not fit all - and contracts, depreciation, costs, inventory and other financials may be handled very differently owing to the reality of the industry.

Retail, housing, airplane manufacturing, cosmetics and more all experience these metrics differently.

1. Go to Checkpoint.

2. Make sure the drop down box is tuned to accounting, audit and corporation finance.

3. Set Tab to Search

4. Look to the right - you'll see AICPA Audit and Accounting Guides



It's a great way to see what analysts are seeing when they upgrade or downgrade a company!

Pink Sheet and Over the Counter (OTC) Stocks

Not every stock is traded on the New York Stock Exchange or NASDAQ.

Historically printed on pink paper, these smaller stocks are called pink sheet stocks or Over the Counter Stocks. Another phrase you'll hear is penny stocks.

These smaller companies and certain foreign companies are traded on this exchange. The stocks are usually highly volatile startups that are either the next big thing or scams designed to part you from your money.

Be careful because these stocks are very volatile.

They do not have to undergo the same vetting process as regular SEC registered stocks, although some do register with the SEC.

SEC page with Pink Sheet Information

Homepage for OTC Markets

Twitter Files Secret S-1

Twitter is going public.

It has filed an S-1 with the SEC, but you will be unable to read it.

This is as a result of the JOBS Bill, which lessens financial reporting requirements for new enterprises.

Here's the full story, with the following great quote  

"But as we loosen regulations, we should always remember that the system only works if investors have trust in the companies and documentation they’re seeing. What people forget is that what we have now was born out of the Great Depression, when regular people lost or were swindled out of untold fortunes. When the original Securities Act was passed in 1933, president Franklin D. Roosevelt wrote a letter to Congress, saying that the “issue of new securities to be sold in interstate commerce shall be accompanied by full publicity and information.”"

Here's a wonderful book that details the fraud and complete loss of capital for ordinary people before we had regulations - an era we appear to be returning to. 

JOBS Bill (Jumpstart Our Business Startups Act): Be Careful

The 2011 JOBS (Jumpstart Our Business Startups) Act makes it easier for small businesses to raise investment capital - maybe a little too easy.  Regulatory filings are reduced, lessening the burden on small businesses but also reducing your access to information.

According to the Washington Post, 

" It allows private firms to raise money by advertising to the general public for the first time in decades, raise up to $1 million in capital from investors via the Internet, and temporarily skirt some of the federal disclosure and accounting rules as they go public."

Remember to watch the great TV show American Greed to get hip to all the different frauds out there.

Rich Dad Poor Dad Author Files for Bankruptcy

Let me give you some more information about Robert Kiyosaki, the financial guru who wrote Rich Dad, Poor Dad.

He's been in the news - because he had to declare for Chapter 7 bankruptcy after losing a judgement.

A judge agreed he had stiffed business partners out of millions. Not a good sign of trustworthiness or character.

Kiyosaki's system is somewhat vague. It mostly involves buying on credit, moving assets around  under shell corporations and insane amounts of leverage.

Here's a more detailed critical view here.

I recommend you follow the link and put in your time doing your research if you're thinking about following his advice.


By the way, Kiyosaki's net worth is at best $70 to $80 million. That's not really master of the universe territory.

A real master of the universe would be billionaire real estate mogul Sam Zell. If you really want to know how to make money in real estate, I suggest you start by researching his career (follow the link for a typical profile). 

Options in Valueline

Valueline is a good database that has commentary and recommendations for buying or selling options. Plus all the numbers you need: strike prices, expiration dates, bid prices and more.

1. Go to Valueline
2. Choose Research Hub

3. You have many options about options to choose from - including the Options Survey with the lock next to it!  It WILL let you in.

Investing Research Guide is Up

The Investing Research Guide is now up! Contains both print and online resources.

Everything you need to know about interpreting financial statements, technical analysis of stock patterns, bonds, getting industry analysis, understanding economic history and more.

I think you will appreciate using some of these deep resources!

Investor's Business Daily

I've recently gotten some inquiries about accessing Investor's Business Daily. We don't have a paper subscription anymore, but we do have good electronic access here. You can pick your database from that link, but I will steer you towards the Business Source Complete option.

I find that most users want to browse Investor's Business Daily, not search by article. If you follow the link above, and choose Business Source Complete, you will be able to browse by date.

If you would rather search by keywords, be sure to select "browse within this publication" once you are taken to the database.

Business Plan Ideas Inside the S-1 Form

Summary: Read S-1 forms for your business plan ideas.

When a company sells stock for the first time, it must file a s-1 form with the SEC. This form explains how the company will make money - its business plan!

Companies can cite anything from identifying a competitive edge in their field, a market inefficiency they will exploit, an opportunity to reduce costs in an industry where this is a problem (like Amazon and storeless internet retailing!), or otherwise explain their plan.

Quickest way to do this:

Go to EDGAR (the SEC database) and

1. Search Most Recent Filings
2. Limit to S-1 Form
3. Avoid the S-1/A (amendment forms) and read S-1s all day.

Now, one thing you can also do is go to the advanced search screen and type in a keyword (insurance, computers, etc.) and s-1. This should get you closer to browsing S-1 plans in your field.

Greatest Hits of Investing Books

I want to keep this short and sweet, so here is a very abbreviated list of some of the best books I have ever read about investing.

1. Clifford Pistolese. Using Technical Analysis.

If you could just read one book about investing this would be it - reading stock charts isn't as hard as you think. Mr. Pistolese unlocks the meaning of charts - in just a couple of days you'll see meaning in charts that is beautifully logical.

2. Any book about candlestick charts. This is another useful addition to reading stock charts based on centuries old Japanese rice futures.

3. Michael Perino. The Hellhound of Wall Street: how Ferdinand Pecora's investigation of the Great Crash forever changed American finance. This book gives you a sense of history so you won't be the turnip that fell off the truck. Learn Wall Street accounting gimmicks and old stock pump tricks. I wrote earlier about this book here.

4. John Kenneth Galbraith. The Great Crash. A great book for investigating normalcy bias. Does that stock price look strong? What if you knew it was trading for the same amount fifty years ago? How people are slow to react to crises because there is not a crisis at this very second.

5. Active Value Investing by Vitaliy Katsenelson. Easy to read book about determining value in a stock. Good sections about appropriate P/E levels for a company, determining a company's resistance to competition, basic primer on discounted cash flow analysis and more. Sort of an updated version of Benjamin Graham's classic book about value investing.

Legendary Investor Explains The Financial Crisis and Aftermath

Michael Burry ran a relatively nondescript hedge fund - until he realized that the US housing market was about to collapse and set about to profit from that.

(Remember, the market was overvalued, corrupt and unbalanced, and there is no ethical problem with benefiting from its implosion. Correction from corruption is part of the ecosystem. You don't want wasteful and unjust imbalances - like abnormally high housing prices - to persist.)

Made about $700 million that way.

Burry - one of the central characters of Michael Lewis's book The Big Short - has written a very interesting article here.

Read his take on what caused the crisis, how no-one noticed, what's next, and his view that our society still has not come to terms with an unresponsive elite class.

Beware of Get Rich Schemes: The Death of Don Lapre

You may have heard of Don Lapre (video here), the manic TV spokesperson, promising riches to anyone that would follow his system.

Well, he died/committed suicide in prison, awaiting trial on charges of mail fraud, wire fraud, money laundering and conspiracy.

True, Mr. Lapre had not gone to trial, but authorities felt something was wrong enough to charge him with several serious crimes.

It's a jungle out there, and without knowledge you are toast.

Link to my previous post about American Greed, the most excellent television series about real life financial frauds. There is some wild stuff on that show (you can watch it online).

Book Review: The Hellhound of Wall Street

Book review: The Hellhound of Wall Street : How Ferdinand Pecora's Investigation of the Great Crash Forever Changed American Finance

The Stock Market crash of 1929 woke investors up to the necessity of getting reliable info about the stocks they were buying. Companies often hid debt, investment banks flipped bad or mispriced securities to the public and otherwise leveraged information to their advantage.

Ferdinand Pecora was an unlikely government inquisitor - one of the few Italian-American lawyers at the time in New York. The book focuses on the testimony of investment bankers, financiers and other witnesses as Pecora exposes the inner workings of Wall Street. It's very easy to cheat people when you possess more information than they.

Bottom line: if you invest money, this is the book that shows how opaque risk is offloaded from Wall Street to you.

P.S. Know what the word opaque means before you start investing your own money.

A Lesson in Commodity Futures

In the near future, you are going to have to understand how commodities are bought and sold. Both growing global demand and the pressure for money to go somewhere are lighting up commodities. Oil, gold, cotton, wheat and rice are just some of the commodities that are about to figure prominently in your life.

Why this is important: Many businesses - like airlines and fuel options - engage in options due to their operational needs. And inflation - and growing demands - makes this an attractive trade in the future.

Unlike equities, commodities often involve contracts to deliver the actual product at a certain price. Most of the time, no actual physical products change hands.

This is good because people sell and resell options and contracts in excess of the actual amount of physical products available. A lot of people don't really have the products to deliver at certain prices either.

Ruh-roh.

Most of the time markets engage in this 120 mph, highwire act without undue consquences. The Great Maine Potato imbroglio of 1976 is a great example of what happens when you find you need to deliver 3 million potatoes to lower Manhattan by 3 pm the next day.

Another take on the whole sordid episode here.

How Not To Be Defrauded

American Greed is a highly entertaining series that profiles famous cases of investor defrauding, from publicly listed giant companies like Enron to small entrepreneurs claiming to have invented the next big thing.

Four things I noticed about the defrauded victims:

1. Naivete about the process of investing
2. Greed
3. Lack of risk control (put all their eggs in one basket)
4. Vulnerable to affinity fraud.

Affinity fraud is one of my favorite examples of how people get taken down. Affinity fraud means that the fraudster plays up similarities in ethnicity, politics, or religion in order to gain the trust of the investor. IMO, Bernie Madoff and Bernie Ebbers (of Worldcom infamy) both engaged in this strategy.

Or.....maybe don't invest with people named Bernie!

Forbes's 100 Most Trustworthy Companies

Here's an interesting list: Forbes's annual ranking of the 100 Most Trustworthy Companies.

To make this list, the company had to meet standards of accounting openness and adherence to conservative (i.e. reality-based) accounting standards.

In an ethically and reality-challenged world where companies' financial statements are often, er, enhanced....it's good to know.

Yup, Bed Bath and Beyond topped the list of large cap companies.

Annual Reports Can Be A SWOT Source

What if your company doesn't have a prepackaged SWOT?  You can use your own noggin and create one yourself (get used to doing this).

Or

The companies themselves will address these concerns in their annual report. This is usually done in their 10-K section 1A (Risk Factors). There is no uniform presentation; the company will list potential adverse scenarios to its profitability (threats and weaknesses), as well as its market strategy and assumptions (strengths and opportunities). They will continue to address these points throughout the rest of the 10-K.

So, if your company is publicly traded check out their annual report. Annual reports are available on the company's internet site, through Mergent or the SEC's Edgar database.

Schedule of Earnings Reports

Hey, this is cool. Yahoo! Finance has a schedule of earnings reports for publicly held companies.

Search by date or company to see when they're announcing.

Bloomberg Has the Best Economic Calendar

Keep up with which economic reports are being released when.

Bloomberg has my favorite economic calendar. Manufacturing surveys, employment reports, inflation numbers, consumer sentiment and more are all here.

Or you could use the NASDAQ version. It's just as good really.