Smart advice for dummies

The beauty of Eric Tyson’s book is that it breaks down complex financial concepts into simple explanations, writes financial planner Gaurav Mashruwala.

By Gaurav Mashruwala | Print Edition: November 16, 2006

The most hard hitting quote of the book is on the first page of the opening chapter. “Although some Americans do struggle for basic necessities, the bigger problem for most Americans is that they consider just about everything— eating out, driving a new car, hopping on an airplane for a vacation— to be necessity. I’ve taken it upon myself (using this book as tool) to help you recognise that investing— that is putting your money to work for you— is also a necessity.” You need to just replace “Americans” in the statement with “today’s generation” to put it in the Indian context.

This book is definitely not for dummies (novices). If you are a complete newbie to the world of money, this book will not be of much help to you. It assumes that you understand the basics of the financial system. Also, if you are a novice Indian investor this book will not be of much use to you. The book is excellent for learning investment basics but it is written for an American readership. Hence, most of the terms used in the book are Americanised.


1 Saving is a prerequisite for investment
2 Stocks, property and small business are best wealth builders
3 Be realistic about expected returns from investments
4 Take a long term perspective
5 Match time frame to investment. Stocks are for long term
6 Diversify your investment to reduce your risk
7 See your financial condition and where investment fits in
8 Ignore short-term movements of the market
9 Allocate your assets according to your age
10 Do your own homework. Never invest on basis of ads, tips
11 Take tax liability into consideration when investing
12 Consider the value of time spent in monitoring investments
13 Where possible, minimise the fees
14 Don’t expect to beat the market
15 Don’t bail out when things look bleak
16 Ignore soothsayers and prognosticators
17 Minimise your trading
18 Hire financial advisers carefully
19 Don’t pollute your mind with bad investing strategies
20 Personal life and good health are your best investments

However, Investing for Dummies is ideal for the mature Indian investor who wants to enhance her knowledge about investment basics in a developed country. But the reader will have to make efforts to identify the relevant information which would be of use to her in the Indian context. This is not too difficult though.

An investor just needs to go through the table of contents to zero in on the relevant sections. She can conveniently skip the sections relating to regulated retirement, taxation and most of the chapters on small businesses.

The book is divided into six major parts. The first part, titled “Investing Fundamentals”, is a must read. The basics of investing— both the theory and the practical aspects— are very well discussed in this section.

The best thing about the book is that it breaks down complex concepts into simple explanations using easy to understand graphs and tables. The real life cases help the reader relate to the situation. Similarities are drawn from routine life situations to drive home the point. This makes it easy for the reader to understand financial concepts.

Eric Tyson, the author of this bestselling classic, discusses the risk return relationship in detail. Risk is an important factor that investors must keep in mind. The book helps the first-time investor gain a meaningful insight into the interplay of risk and reward.

The section on stocks and bonds offers several interesting insights into wealth creation. While he tells readers how to study stocks and pick out potential winners, Tyson makes a strong case for investing in stocks through mutual funds. He lists out four good and four bad reasons for individuals to pick their own stocks.

Tyson advocates investing in index funds. Since Indian markets are different from developed markets, index funds may not be the best option for everyone as yet. However, sooner or later index-related instruments will become part of our portfolios. In the same chapter, read “Citing Times of Speculative Excess”, where the author has written about various “bubbles” through history. Later in the chapter “Avoiding Problematic Stock Buying Practices” offers good advice on what not to do while investing in stocks.

Then there is a section on small businesses. It tells you how small businesses are built and traded in the US. But culture plays a major role in this regard. Most small businesses in India are family run and in the majority of cases, the next generation inherits the business. We worship business. Buying and selling of business is not very common. Also, due to the lack of transparency and unaccounted transactions, it is difficult to gauge actual valuations.

The section on real estate is also packed with valuable insights but the reader has to pick and choose. While some of the information is universally applicable, much of it is specific to the US property market. To be fair, real estate markets in any country are governed by local conditions and regulations.

The last section is all about investor psychology. Tyson lists out 10 obstacles that investors need to conquer to win in the stockmarkets. He also tells you 10 things to consider when selling an investment and tops that up with 10 tips for investing in a down market. That last bit might seem irrelevant at a time when the market is at an all-time high. But I would advise all investors to particularly read this chapter.

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