Tuesday 25th January 2005
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Book Review by Tony Cross
The first thing any reader probably wants to know before reading a book of this type is the credentials of the author. David Nassar is a prominent figure on Wall Street being founder and CEO of Marketwise University. David was one of the pioneers of electronic share trading and is a regular presenter on TV and writes extensively for publications such as Wall Street Journal. His credentials, knowledge and experience certainly are impressive and make this publication all the more credible.
As an American it is unsurprising that David Nassar’s examples and commentary are to the US market. From a New Zealander’s viewpoint this may not be helpful but when one considers that what happens in NZ is inextricably related to the US economy I think it important that we all have an understanding of this vast market. Also given the ease of being able to trade shares in any world market these days at the touch of a button, many more New Zealanders are looking at investing offshore. It also seems that whatever happens in the regulatory field in the US tends eventually to be absorbed into New Zealand. I personally was not put off by the fact that the publication is overtly geared for US readers.
I felt that the first half of Nassar’s book was particularly sobering and honest and gives plenty of warnings on the risks of investing in equities There is discussion of the internet bubble in the 90’s, of the corruption within brokerage houses (hopefully a thing of the past). If you are still feeling inclined to risk your investment funds after reading the first part of Nassar’s book the second half gives you all the technical advice you could possibly want on investing. There is an interesting phrase in the text of the dollars always seeking the best home. This is a real truism and explains so much of investors’ behaviour and market trends.
Some fascinating facts are revealed in Nassar’s book, such as the fact that the US share market is capitalised at $US 11 trillion whilst the fixed interest market is worth $21 trillion. Another interesting fact revealed is that the Dow Jones is only comprised of 30 stocks. My knowledge of the US share market was certainly enhanced after reading this book.
For myself there were some interesting historical facts such as that the Federal Deposit Insurance Scheme that protects investors term deposits was instituted as a result of banking failure after the 1929 crash. The horrifying statistic is given that after the 1929 crash that the Dow index had fallen by 90% by 1932 !! There are lots of other interesting historical snippets like this throughout the book. There is a great summary of how the Federal Reserve works through stimulation or tightening. After reading this section I had a much greater understanding of the Government’s role in influencing economic matters.
As the title suggests “Active trading and Investing” the bulk of the book explains investor and market psychology and how through technical analysis it is possible to successfully invest. For anyone believing in charting as a successful investing strategy this is the book for you. There is a large amount on how to interpret share movements and a host of well tried strategies that professional investors utilise. Readers are slowly introduced into the world of technical analysis and all methods of analysis are explained in easy to understand terms. If I wanted to be an active trader this is the book I would choose to assist me.
There are some real gems of quotes in Nassar’s book. The ones I particularly liked were : ‘Buy rumour, sell fact” and “The trend is your friend” . There are a number of companies in New Zealand offering to teach people the secrets of successful share trading if you only pay $X or purchase their software for some ridiculous price. More likely than not you would probably get much better value and guidance through buying this valuable text. Its so much more than a simply ‘how to” guide to charting. At 280 pages it’s not a light read and not designed as such but a good reference book that one would want to consult on a regular basis.
Whether all the strategies mentioned in the book could be utilised in the NZ market I have some doubt given the NZ market is so much smaller and probably not as liquid as the US market. I have often wandered what would happen if all investors used the same type of technical analysis in picking stocks.
To me the most valuable comment lies in the conclusion at the end of the book where the author warns of becoming too targeted to chart patterns. He warns that there is another critical factor to take into account in successful share investing. He refers to this as the Zen factor – an intangible factor that can only be acquired from years and years of share trading. To me the book is very good but those expecting to make fortunes overnight simply by attempting to apply some of the strategies detailed in the book may be disappointed.
As Nassar clearly points out you also need a bit of the Zen factor. There could be a temptation to be a bit too optimistic, too have too much rah-rah and inflate investors’ expectations as to the ease of making a fortune by online trading. David Nassar successfully resists doing this and I believe presents a very balanced, even cautious, view on the rewards of active share trading. It’s a pity some other authors writing on such subjects couldn’t do like wise.
Am I now a convert to Technical analysis and charting? No – I am a follower of the Warren Buffett school of investing following the philosophy of buying shares in great companies at good prices and holding them rather than trading. Not that I don’t believe that Active trading is a rewarding and successful strategy for many investors.
If you'd like your very own copy of How to Get Started in Active Trading & Investing either go to the Good Returns bookstore here or call 0800-345675.
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