I went to my library again in recent days to pick up a couple more learning resources. The first was an audio book appropriately titled Learn to Earn
, written by famed stock picker Peter Lynch.
One of the most interesting of Lynch's theses was about the dangers of market timing. In order to get the full benefit of being in the stock market, Lynch points out that you have to put money in that you can leave forever. He talks about a good stretch for stocks in the 1980's, when "stock prices gained 26.3 percent per year." But the most interesting thing about this profitable stretch of 1,276 days was that most of the gains occurred 40 days. As Lynch writes, "If you were out of stocks on those 40 key days, attempting to avoid the next correction, your 26.3 percent annual gain was reduced to 4.3 percent."
Although the book is ten years old and somewhat dated (he mentions tracking stock prices in the newspaper), his primary message is still relevant: pick stocks based on the earnings of the company. If the earnings of a company go up, the price of its stock probably will as well.
The second was Financial Peace Revisited
by Dave Ramsey. If you're a fan of his show (as I am) there isn't a lot here that will be new to you, but it's a quick read and has some beneficial nuggets. I enjoyed his chapter on negotiating and on investing. One particularly interesting point in the book (page 120) is the importance of investing early in your life. He shows two investors who invest $2,000 per year at 12 percent. The first one invests from age 19-26, for a total of $16,000, and then never invests another penny in his lifetime. The second invests nothing until he turns 27 and then invests every year until he turns 65. His contributions amount to $64,000 or four times the first investor's total. Who ends up with more at age 65? The first investor. The more of the story: INVEST EARLY AND INVEST NOW!
The book also has almost 30 pages of financial management forms that assist in budgeting and planning, some of which are available on Ramsey's web site
. If you're just getting into financial planning and budgeting, this book is a great place to start.