New Book Coming Late 2009 -- For Existing Book Recommendations and products click here
What is the Little Book of Stocks?
This is a book I am writing to help you if you want to learn about the stock market. While many books exist to teach specific trading strategies, I have not found a book that ties together various bits of knowledge and psychology. The key point of this book is teaching you "What You Didn't Know You Don't Know."
This book is about background, technique and knowledge. You will develop your own methods confidently knowing what you don't know. We do not discuss futures, options or shorting in depth. This book is to show you the basics needed before you start trading stocks.
What's This About History, Politics and Economics?
I have always been interested in History, Economics and Economic History. These are three distinct fields of study. To put it in a nutshell, if you don't know where we've been you won't know where we're going. Mixing modern information with concepts that have stood the test of decades or centuries, the Little Book of Stocks helps you understand approaches for beginning investors not found in other new books.
In times like 2009, Politics is critical to markets and stock trading (unfortunately). While the best times are the times you don't have to pay attention to Washington, understanding the age you live in is critical. Political trends seem to defy the idea that a trend in motion tends to stay in motion. As we have seen in early 2009, the political environment can turn quickly. In the Little Book of Stocks I will show you why the need to stay current on politics might just be a sign not to trade.
What Does Psychology Have to do With Stock Trading?
In the stock market there are fundamentists -- not religious fundamentalists, but people who make trading decisions based on company-specific information. They study balance sheets, quarterly reports, P/E rations, dividend and so much more. You need to know how to be a fundamentalist. Jim Cramer and Graham Dodd are two examples of fundamentalists.
In the stock market there are also technicians. These traders work off charts, looking at the technical aspects of a stock's behavior like volume in addition to price. These people have more names that you might believe for various patterns and shapes found in stock charts. Head and shoulders, cups with handles, double-bottoms and double-tops mean something to these people. You need to know how to be a technician. Bloomberg Press has an interesting book called The Heretics of Finance, written about technical traders.
So far you now understand you need to be a fundamentalist AND a technician. You also need to be a psychologist. Not only must you understand your own tendencies, you must understand the mob action of the day. Perhaps the best modern writer on this subject is James Dines in Mass Psychology. A very important work of Mass Psychology from an earlier time is Extraordinary Popular Delusions and the Madness of Crowds, written in the 1850's about historical episodes where entire societies go nuts all at once. This happened with John Law's Mississippi scheme, the Dutch Tulipomania and in modern times with the housing crash and the Internet crash. Will the Treasuries crash be next?
OK, Fine. Why Sex, Drugs and Gambling?
Drugs refers to the parts of the Little Book of Stocks where I discuss the nature of buying drug companies. While drug companies were long considered to be a defensive safe haven, this was all turned on its head in early 2009.
Sex is a fun little part of the book where I summarize James Dines work on how market language and descriptions seem to be filled with references to sex and love. Gambling is another reference to Dines groundbreaking work in Mass Psychology to show how many stock traders have a secret desire to lose. Before you can begin trading you need to assess your own personality to see if you have a suppressed gambler in you. If you have bad gambling habit, you will need to rid yourself of them.