Book Review: Why Does The Stock Market Go Up?
8 May, 2022
I have a shelf dedicated to personal finance books that I actually enjoyed reading (many don’t pass that test). The books that live there are the ones that I often refer to. Most of my books have done a lap around Aotearoa many times because I regularly lend my books* to my blog readers. People are often surprised I’ll post my books to strangers, but I’m pleased to say they always come back to me.
* Just on that note. I had a list of people waiting to be sent books, but I LOST MY LIST. If you know you were on it, please get in touch with me, telling me what book you wanted, and I’ll post it to you!
I’m pretty particular about the books I keep for future reference, I have to LEARN something from them, or there is no point keeping them around. They also need to pass my stringent ‘sleep test’. If I fall asleep reading them, it’s not a good sign. I also remain confident that ALL personal finance books could get their point across using half the amount of words/paper. I’ve recently bought several new release personal finance books that I’ll review once I’ve read them, but today I wanted to give you a heads up on the one I’ve just finished:
Why Does The Stock Market GO UP? By Brian Feroldi
Everything You Should Have Been Taught About Investing In School, But Weren’t
Did I enjoy it?
Yes.
Did I fall asleep?
No. Thanks in part to its concise chapters.
Will it remain on my shelf of ‘useful personal finance books’?
Yes.
I heard about this book because of ChooseFI, an excellent American blog and podcast I’ve followed for many years. They started from nothing and have created an expansive network of people and resources for those wanting to pursue financial independence. The authors of ChooseFI wrote a book of their own called ChooseFI: Your Blueprint to Financial Independence (also an excellent book that sits on my shelf). They have collaborated with Brian Feroldi to create the book I’m reviewing today. I think it’s an excellent addition to their collection of resources.
They have interviewed author Brian Feroldi on a recent episode of the ChooseFI podcast, and it’s really worth taking a listen: ChooseFI Ep 371. Brian is an educator, financial coach, podcaster, speaker and writer. He wrote the book because he was basically sick of seeing advertisements for financial services baffling people with bulls**t, making the stock market sound like this complicated place where you and I dare not go alone. His observation is that, in reality, the stock market actually isn't all that complicated.
The stock market once confused me, too, until I learned enough about it to realise that at its heart, it is just a way for me to take a tiny piece of ownership of a company and share in its success. In this book, Brian uses his fictional business called ‘Best Coffee Company’ to explain all the most important financial concepts and terms that anyone looking to invest in the share market needs to know.
It is broken into ten parts:
Part 1: STOCK MARKET BASICS
Part 2: GOING PUBLIC
Part 3: VALUING A BUSINESS
Part 4: WHY THE MARKET MOVES UP AND DOWN
Part 5: STOCK MARKET CRASHES AND RECOVERY
Part 6: WHY EARNINGS GO UP
Part 7: ALL ABOUT COMPOUNDING
Part 8: GETTING STARTED
Part 9: ALL ABOUT FINANCIAL ADVISORS
Part 10: AVOIDING BIG MISTAKES
Then it covers some common questions that people ask, such as “what is dollar-cost averaging” and many others. It ends with the advice he would give to his younger self, and he wraps things up nicely by reminding us all that becoming an investor in the share market is just a small part of a bigger picture. And that is precisely how I feel about investing; it’s a useful skill to learn. It is right up there with learning to cook, drive a car, earn a living and budget your pūtea.
Who might find this book helpful?
A wide range of people who want to learn the basics. Why Does The Stock Market Go Up will give you a good general understanding of pretty much all you need to know to become a successful investor. It’s relevant to people who think they can successfully pick individual stocks or people like myself who just buy an ETF and call it a day. I believe that if an adult bought it for their teen/young adult and didn’t ‘tell’ them to read it but just casually left it somewhere, they might trip over it and begin to read it, and they might suck up some beneficial knowledge.
I get emailed questions every day, and I can see this book being handy. For example, I was recently asked, “why would a company split its stock”?
The book gives a short version:
“A stock split is when a company divides existing shares of its stock into multiple new shares of stock in order to lower the price”.
And then, there is a longer explanation of the history of a ‘stock split’ and why a company might do it today. It’s explained using a 50:50 mix of images and text, which I think is great.
This week, I was emailing a woman about why her mix of share investments might be down? ‘Chapter 21: Why has the stock market always recovered from crashes?’ would be an excellent chapter to point her towards because yes, we are in a lull at the moment, but give it time, the share market always goes up.
It’s full of useful stats, all of which I read and thought, “I must remember that”! Unfortunately, I probably won't, but here is a stat for you right now:
Over one year, the S&P 500 goes up 69% of the time.
Over every 20-year holding period, the S&P 500 has produced a positive return 100% of the time.
It’s more of a reference book than a story, and I think it would be a good book for readers and non-readers alike. Both types of learners will come out of it with more knowledge from the short, concise chapters and the author's easy-to-understand writing style. For the person new to investing who finds themselves on one of the many investing platforms we now have in New Zealand, you could have this book by your side to help you understand what you are looking AT online, i.e. what does ‘market cap’ mean? But most importantly of all, if you have read it cover to cover, it will narrow down what you are looking FOR online. Although these platforms spread the message of how easy it is to invest (which it is), that is not much help when you are trying to work out what to invest in.
It is American centric, of course, they are referring to the Dow Jones, S&P 500 etc. (all of which they explain by the way), but unlike some other books I read, the parts we Kiwis and Australians need to skim over because they simply don’t apply to us are brief. By and large, stock markets are the same the world over, so most of the information is international.
Each chapter I read made me think of the investing journey I am on myself, and it helped me understand some things I didn’t fully understand and broke the information down into bite-sized chunks that I added to my knowledge base. Above all else, it helped me know that I, a self-educated investor who handles her own money, do have the knowledge to be perfectly good at doing so. I’ll keep it handy to help answer questions that you send to me. You might read it once and hand it to a friend; either way works for me! As long as we are all becoming a little more comfortable with being investors in the stock market, I’m happy.
