Teaching people about investing generally comes in two flavors: plain-vanilla, simple prosaic stuff or text-book-heavy chocolate which is either too complicated or too boring to digest.
Simple books tend to lack the rigor or pragmatism that investors face. Investing is hard and a general investing overview is typically insufficient to help investors facing tough decisions: like selling into a fiscal cliff or avoiding home or Internet bubbles.
On the other hand, definition- and formula-driven books also lack a real-life approach to investing. Instead, books like these are good for classroom settings or MBA-on-the-job training.
Sneaking in the complicated stuff while engaging the reader
James Berman’s new book, Lessons from the Lemonade Stand, uses a common metaphor to teach the basics of investing: the lemonade stand (Joel Greenblatt used a similar one in The Little Book that Beats the Market.
By abstracting out the “hard” stuff about investing and focusing on the most simple of businesses, Berman (a finance prof at NYU and an investment advisor) is able to gradually introduce more complicated concepts without overwhelming the reader with jargon.
Really, Lessons from the Lemonade Stand encompasses much of an introductory finance curriculum in book form that reads, well, more like a book of fiction than one on investing.
Interesting excerpts
The difference between traders and investors:
The difference between investors and traders is almost religious in fervor. Ironically, both have the same goal: to make money. But each approaches that task in a different way. At first glance, investors hold stocks for the long term while traders buy and sell stocks on a short-term basis. But the distinction is more philosophical. INvestors view stocks for what they are: pieces of paper that grant ownership in a company. Traders view stocks as gambling chips” things to be bought low and sold high regardless of what they actually represent.
Taxes:
The wise lemonade stand investors spends some time learning the ins and outs of taxes. Unfortunately, the tax code is outlandish in its complexity. But it’s yours. And if you want to hold onto your gains, you better know the basics.
Price vs. Value:
In the real world, just as in Lemonville, everything has both a price and a value. Understanding the difference is the key to success. A stock’s price and value are often far apart.
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