Nov 4, 2014 Investment Education: Why Stocks Go Up and Down – Reviews
Hello. This is Bill Pike. This podcast begins a new series in which I will discuss each chapter of our book, “Why Stocks Go Up and Down”, and say why it is important for investor education.
This book starts at a very basic level, but be patient. By the end, you will see that it goes well beyond other introductory book, often covering topics that others shy away from.
Chapter 1 is titled “Starting a Business”. In this chapter, Mr. Jones establishes The Jones Mousetrap Company by opening a bank account for the company with a $100 deposit. He then spends some money on wood and metal, his raw materials inventory, and he buys some tools to make the traps. He hires an employee and pays wages. Chapter 1 follows the accounting for each of these and other transactions, and shows the resulting evolution of the income statement and balance sheet. This will be expanded upon in subsequent chapters.
My co-author, Patrick Gregory, and I have been teaching investments courses for many years. From our teaching experience, we have learned that starting with these accounting basics provides readers a better understanding of financial statements. This, in turn, enables them to better understand their own investments, and thus more have confidence in their investment decisions.
We believe that our book is unique in this approach, as well as in its coverage, depth, and clarity.
Here is just a one paragraph excerpt from Chapter One:
Begin excerpt:
At this point, Jones began making mousetraps. He used $20 worth of wood and metal and built 10 traps. If Jones wanted to be more accurate on his balance sheet, he could now separate inventory into two groups:
Finished Goods and Raw Material . The book then shows the inventory portion of the balance sheet.
Excerpt continues: Jones brought the completed mousetraps to a store that agreed to sell them, and sold all 10 traps for a total of $50.
At this point, Jones decided to draw up his first income statement, and redo his balance sheet. The Income Statement from January 1 to January 31 looked as shown below. I’ll end the excerpt here.
Thus the income statement for the month of January would look like this:
As you can see, the book starts out assuming the reader has no prior background in accounting or investments. But as I said earlier, we will go into substantial depth after we build up to it.
Excerpts and comments on chapters 2 through 19 will be posted over the next few weeks. But if you want a preview of what is covered in the book immediately, please visit our website at www.whystocksgoupanddown.com and click on Contents.
This is Bill Pike. For more about investment education, please see the blog on our website at www.whystocksgoupanddown.com
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