Here is a review, summary and ratings of my favorite 4 books. The ratings represents my personal view and it may be wise to also check out the ratings of other readers on Google.
The Millionaire Next Door - Thomas J. Stanley
This is very easy to understand book and it is mostly based on surveys and research done by the author on the general public. It can really open the eyes of the readers who are used to viewing things on a shallow basis. While this may sound obvious, the authors wrote about how the media portrays the wealthy families generally having fanciful houses and cars along with thoughtless spending on a luxurious lifestyles. Which variety show or commercials will show a boring self-made millionaire who does not look like one from the car he drives, the house he lives in and the clothes or watch he wears? Most viewers will not be attracted to such a boring theme.
The case studies shared showed some interesting insights about millionaires:
• You will not notice them as millionaires if they were to be your neighbor, simply by looking at what the things they owned and the life they lead.
• They are frugal and invest more than non-millionaires. And usually, their parents are frugal too.
• As they stay in normal neighborhoods, they blend in with other people of different net worth classes. It will be the opposite if one stays in a neighborhood of high-consumers, he or she will feel pressurized to match their houses/cars/clothing/lifestyles to the “rich” environment.
• Their parents are often low consumers. When children are brought up in a high consumption environment using their parents’ money, they will learn "to live, they must splurge and consume". They tend to live the same spending lifestyle as they get older but may fail to earn as much income as their parents did.
By net worth accumulated, the population is categorized into Under Accumulators of Wealth (UAW) and Prodigious Accumulators of Wealth (PAW). PAWs are those who has high net worth and are on the way to being or already are millionaires. UAWs are the exact opposite and it is impossible for them to turn millionaires without striking lottery or getting an hefty inheritance.
People in the UAW group are not necessarily low income earners. Despite that there are numerous high income earners in the UAW group, they spend most of their earnings away. Some PAWs may have lower income than some UAWs but that does not stop them from becoming millionaires because they live below their means ; such as owning normal houses and going for second hand cars.
*Thus, there is no need to be jealous or envious of someone who appears rich from their spendings. They may be the UAWs of the population.
PAWs usually find the cheapest deal too. For example, those who are not in a rush to have a car will wait for the winter seasons to make their purchase when the demand is the lowest. During this period, it is very easy to walk away with a car on a great deal.
Other examples showed that parents who kept giving cash gifts to their children actually provides unhealthy dependence. Giving them independence actually helped children to learn the importance of wealth accumulation.
If you want to understand how millionaires accumulate their wealth or if you are looking for motivation to save more income, this is the book for you.
Rating: 4.0 /5.0 
People in the UAW group are not necessarily low income earners. Despite that there are numerous high income earners in the UAW group, they spend most of their earnings away. Some PAWs may have lower income than some UAWs but that does not stop them from becoming millionaires because they live below their means ; such as owning normal houses and going for second hand cars.
PAWs usually find the cheapest deal too. For example, those who are not in a rush to have a car will wait for the winter seasons to make their purchase when the demand is the lowest. During this period, it is very easy to walk away with a car on a great deal.
Other examples showed that parents who kept giving cash gifts to their children actually provides unhealthy dependence. Giving them independence actually helped children to learn the importance of wealth accumulation.
If you want to understand how millionaires accumulate their wealth or if you are looking for motivation to save more income, this is the book for you.
One Up on Wall Street - Peter Lynch
One Up on Wall Street is sectioned into 3 chapters: Preparing to Invest, Picking Winners, The Long-Term View.
The first chapter is an introduction to investors, telling us not to make guesses and assumptions which lead to speculations. Picking Winners, the second chapter, is an important one covering Peter Lynch’s strategy to finding great stocks which may eventually lead to multi-baggers. It was mentioned that it is still not too late to catch a multi-bagger even if it has already returned a two to three folds. Some stocks will continue to return another 10 folds after doubling or tripling. And it does not stop at getting into the right stocks; we need to recheck the company’s story after a few months of owning them.
Here is his well-known company segregation:
- Slow Growers: These are stocks we owned mainly for the dividends because the companies are growing at a very slow pace, which equals to slow share price movements. We need to be aware of the percentage of earnings used to pay dividends. When a company earns little money and pays a high percentage of income to dividends, it will be unstable during hard times .
- Stalwarts: These are companies which are established, stable and with strong on-going income. We can use PE ratio to analyse them. As they have been growing for many years, it is important that their long-term growth rate is maintained. Any slowdown can be seen as a warning sign to check further. There is also a need to check on any factors that will reduce future earnings.
- Cyclicals: As the name said it, cyclicals move with the economy. What we need to look out for here is rising inventories, supply/demand relationship and any new huge competition. PE ratio can be misleading: PE can be low when earnings are at its peak. This will be the riskiest time to invest in such stocks as it is at the end of a good cycle. It is surely a good time to scope these companies during slump periods and bad times.
- Fast Growers: These companies are possible multi-baggers. Their growth rate in earnings should be around 20-25% to be favorable. When the company is able to be successful in different new places and is fast expanding, has a lot of room to grow and their stocks are still unheard of by many intuitions or analyst, it is the best time to buy their stocks.
- Turnarounds: Such companies are facing very bad times and it is also risky to invest in them without doing much research. The most important question to ask is will the company turn around and get their business back?
- Asset-play: Companies which have piles of cash, patents, property or any underlying assets that are not well known to outsiders are asset plays. You will win big by buying these companies way below their intrinsic value and wait for the public to recognize its true hidden value.
I give this book the highest rating due to the in-depth sharing on the strategies in finding great stocks and the awareness we need to take to avoid certain stocks at a certain time. Most importantly, the phrases used are very straightforward to read with ease.
Rating: 4.5 /5.0
Beating The Street - Peter Lynch
In the beginning, it was introduced on how Peter Lynch has successfully built Magellan Fund during his tenure as a fund manager for Fidelity Investment from 1977 to 1990. The fund grew an additional of $10 billion by 1987 from an initial size of $100 million, thanks to his stock picks namely Chrysler, Ford, GM, Philip Morris, Volvo, General Electric and Fannie Mae in the early 1980s.
In the later part of the book, Lynch shared how he researched and pick 21 companies he recommended in 1992 Barron's Magazine Roundtable stock. Retail is the first place he will look at as it is a common place to openly observe on new things or food which people will go for, even if the businesses may seem boring. The investor noticing such successful business in the early days will profit tremendously as prime growth usually last for a few years.
Searching for undervalued and profitable companies in depressed industries and observing the predictable behaviors of cyclical stocks are some of Lynch’s favorite strategies which were elaborated. Searching for good gems is the start but not the end in successful investing. Lynch explained that re-evaluating current investments around every 6 months is very crucial to keep oneself informed. This is to check if the story has changed and what are the new plans for the future in order to decide what you should do next.
It was also repeated a few times in the book that stocks generally outperformed bonds as history has supported. Bonds actually returned the investor with the cash that was inflated but does not necessarily beat inflation (but merely offset).
I really liked how the book shared the strategies and steps required in the search of stock gems, which is very technical. Not many books do this as straightforward as this book does. There are certain parts in the book I found deeply applicable in real life:
1. Investing as a retailer: If we will to do this during our shopping OR heard of Invisalign made by Align Technology from our friends or girlfriend/spouse, we would have invested in these multibaggers early on. Estée Lauder is another example from cosmetics, look at their stock!
2. “Searching for undervalued and profitable companies in depressed industries” sounds exactly like what Keppel and Sembcorp Industries are facing since the drop in oil prices. Yet in such doom times, both have managed to remain profitable.
Ending the book, there are 25 Golden Rules in investing which we should keep reminded throughout our lives. This book is quite similar to One Up on Wall Street in my opinion.
Rating: 4.5 /5.0
The Essays of Warren Buffett: Lessons for Corporate America- Warren Buffett
The book revolves around mainly on the organization and management of Berkshire Hathaway and its investors will surely enjoy the book. I would not have known that Berkshire Hathaway stocks are different from other American companies without reading this book. The message conveyed to the investors in Berkshire’s annual reports are meant to attract long-term investors who are willing to stay put and not be affected by the wild short term price changes. The aim of Warren Buffett and Charlie Munger is to keep Berkshire’s share price as close to its intrinsic value. Any variances in prices to
Intrinsic value are viewed to have negative effects on both the new investors and the long-term investors.
Many analogies were given to encourage long-term investing, to reap the benefits which a growing company can offer over the many years. Investing is like buying over a business, one does not simply sell his stakes when a real business becomes valuable. Instead, he should remain his stakes so long as the company is creating value and income to the owner.
Personally, I enjoyed ,Chapter 5:Accounting and Taxation, the most. This is the summary:
• Annual reports are reported accordingly to GAAP but not necessary to the true values. As an example, many previous business owners have objected to Stock options being recorded in accounting as “it is hard to find its true value”. This excuse was given to avoid it being treated as an expense. However, this makes no sense. Depreciation are to be recorded according to GAAP when its values are usually based on estimations. (unknown true value)
• Economic Goodwill VS Accounting Goodwill:
Economic Goodwill is a hidden value and grows with inflation while Accounting Goodwill is recorded in financial statements and will usually depreciate overtime. Economic Goodwill can actually far exceed the Accounting Goodwill that was reported in annual reports, and is a big win to investors in such cases.
• Deferred Taxes are “forecasted taxes” and usually inaccurate. By reporting deferred taxes in advance, it can greatly influence the company’s reported net worth.
• Book Value are figures reported based on accounting rules while Intrinsic Value is the figure based on projected future cash flows with consideration of the US treasury yield curve.
• Look-through earnings: This is most applicable to companies who owns other companies. A GAAP only requires the owning companies to report figures when the ownership is between 20% to 50%. If the ownership is less than 20%, only dividends received are allowed to be recorded.
Let’s say Company A owns only 15% of Company B, only dividends will not reported but not their earnings. This can greatly understate the income of Company A if Company B’s revenue is capable of growing extensively.
It is a good book to pick up skills on how to uncover annual reports mysteries which are presented to look great. The "how to" guides are useful but some are not straightforward or are given in full details. For instance, intrinsic value was compared to book value but the formula to derive intrinsic value was not fully explained in the book.
Nevertheless, it is overall worthwhile the time to finish the book.
Rating: 4.0 /5.0
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