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Monday, May 2, 2011

Favorite Books of My Financial Adviser...errrrr....Son

I conducted a short interview with my financial adviser (Frugal Son) via chat.

Me: What are your favorite finance books?

Son: So far my favorite has probably been Bogleheads. I'm also reading a book right now called Warren Buffet and the Interpretation of Financial Statements, which is shaping up to be pretty good. And the way I choose my stocks is, so far, very simple, but will hopefully get a little more involved once I'm finished reading this book.

Right now, I look for a P/E ratio that is not too much higher than 15 an consistent, positive EPS. I like dividend paying stocks, so I look for companies that have a history of paying dividends even in down economies. I also like stocks that have a price-to-book ratio of near or below 1 (ideally).

Me: So it's not brain surgery.

Son: Nope. That's about it. This latest book is teaching me how to look at underlying financials to get a better idea of the financial state of the company like about debt ratios etc., but the price-to-book ratio below 1 is nice because theoretically (emphasis on theoretically) that means that even if the company goes bankrupt you won't lose money theoretically.

I am amazed.


Shelley said...

I've sometimes thought choosing stocks that have added benefits, ie let you upgrade or give you advance notice, free tickets, etc. would be fun. I gather these used to exist, but no idea if they still do. I have a small pot of money in 401/457K stocks. Otherwise the last few years I've put money into funds. One has done poorly (chosen by my crook of a financial advisor), one has done reasonably well (Bill's recommendation). The one that has done best? (20% income?) The index fund: no fees.

The hard thing I gather (no expert here at all) with buying your own individually selected stocks is diversification. Unless you've loads of cash, it would take a fair bit of time to spread the risk.

Those books are on my list to read, but until I'm convinced otherwise, I'm likely to stick with my index linked stocks.

Frugal Scholar said...

@Shelley--Even my son has mostly funds. Believe me, I'm sticking to 95% index fund. too.

Suzy said...

My level is still Eric Tyson's Personal Finance for Dummies. I also enjoyed reading some of Suze Orman's for a while and more recently Dave Ramsey. I don't mess with individual stocks though at one time I was interested and did sharebuilder.All my investements are inside my 401k and roth IRA; other savings so far are in credit unions/savings accounts

Revanche said...

I think that's cute and kind of fun. I own all of seventeen stocks for the interesting factor of owning stocks and watching them bobble up and down. For the most part, I bought low enough that they've always stayed above purchase price so theoretically I should be able to sell for a handful of change in profit (all I'd ever be able to do with only SEVENTEEN shares!)

Of course everything else I own in investments are funds.