The Brainwashing of the American Investor: The book that ... (ISBN 1934354031)

The Best Investment Book I Have Ever Read:
As I write this (11-27-2007), the markets are getting ready to open after closing down the previous day. The Dow Jones industrial average has fallen nearly 240 points and the headline in the local paper is screaming "Wall Street suffers another big hit." Serious-faced announcers on cable-TV are saying the Dow is down 10.03 percent from its mid-October closing high, officially putting the blue chip index past the 10 percent threshold that signifies a correction. For Steven R. Selengut, author of The Brainwashing of the American Investor, corrections such as this are as welcome as rallies. The market, he points out, is just doing what the market has always done. "Here is some advice that you just won't hear on CNBC or read in The Journal," he writes in this revised edition of an earlier book bearing the same name. "It is based on one incredibly simple market fact: There has never been a market correction that has not succumbed to yet another rally. So when the doom and gloom noise becomes deafening, get yourself out there and party." When the markets move into a correction, Selengut's investment strategy already has investors sitting on a pile of cash -- accumulated profits taken on stocks as the market rallied -- plus cash thrown off from fixed-income securities. As the NYSE-traded stocks he follows move down 20 percent or more, he moves back into them and waits for a 10 percent profit to cash out and then look for another opportunity to repeat the process. Even better, for skittish investors such as me, Selengut's unique "Working Capital Model" reduces the emotional factor by taking the emphasis off market value and focusing on growth of working capital, defined as the total cost basis of the securities and cash in the portfolio. As long as working capital is increasing, market value is irrelevant. As a recent retiree, I appreciate this conservative approach to growing working capital. I implemented and followed the trading strategy myself for about a year and a half before turning my account over to Sanco Services, an investment management company founded and operated by Selengut. The Working Capital Model worked the way it was presented. My only reason for turning the account over to Sanco was to be sure that my financial assets would be handled in such a way that my wife would not have to worry about an adequate income in the event that I was no longer able to manage the assets myself. The Brainwashing of the American Investor is a book I wish I had been able to read 30 years ago. Those of you who still have years of investing ahead of you would do well to buy this book and read it thoroughly two or three times. It will save you a lifetime of mistakes that come from following conventional wisdom. This is the book that Wall Street does not want you to read.

Easy to understand even for non-investors:
There are money-making opportunities in the financial markets, but the first thing an investor should do is ignore much of what comes out of "Wall Street." The investor should especially ignore the phone call from the new MBA at a brokerage firm pushing some hot new stock that is supposedly "about to take off." The stock is being pushed because of the size of the commission on any purchases. If the stock is so wonderful, does the broker have it in his or her own portfolio? Next week, some other stock will be "about to take off." The investor can also expect a call from a broker saying that their mutual funds or municipal bonds perform much better than what the investor is in now. How about a switch? More transactions equals more commissions. Wall Street does not do anything for free. Even if something sounds "no fee" or "no-load," the brokerage will get its fee somewhere. The investor should certainly keep up with the business news, but do not spend hours and hours every day at it; that will not leave any time for actual trading. Go through the Sunday paper and come up with a list of buying possibilities. These are May Buy stocks, as opposed to Will Buy. Just some basic information is needed about each stock, like its 52-week high/low and yesterday's close. If a stock is down at least 20% from its 52-week high (not 19.5%), move it onto your Will Buy list. When choosing a broker, is it really worth going through several minutes of Press 1 and Press 2, before you reach a human, while the price of your stock goes in the wrong direction, all to save a few dollars on the commission? Pay the extra commission, and choose a broker where a human really is just a phone call away. It is easy to buy a stock, but much harder to know when to sell it. If your stock rises from 20% to 10% below its 52-week high, sell it. Do not get greedy, and wait for it to rise just one more point; it may never come. There will be other opportunities. Besides, a double digit profit in the stock market is nothing to scoff at. On the other hand, if your stock continues to slide into oblivion, know when to cut your losses. There will be other stocks. This book seems to be much easier to understand than the stock trading "systems" advertised on TV and in the Business section of the local book store. The experienced investor may kick themselves, realizing the money they have given to Wall Street, for little or no reason. It is also recommended for novice investors, and even non-investors (like yours truly).

Beware the bear:
This book is very well written, and the logic and analysis seem sound. I'm sure this is an excellent strategy for range bound markets which need a sound trading strategy. It probably is not as good in bull markets because you'll have a very small selection universe, and stocks left behind in a bull market usually deserve to be left behind. The real danger is a bear market. You'll have many good stocks to choose from and will quickly fill your portfolio. Then you'll have the displeasure of watching your equity constantly decline. Your working capital won't decline, but it no longer has any rational relation to the value of your account. If you're young and can wait it out, you'll probably do okay, but older investors won't be able to handle the draw down. Being fully invested with no hedge during a bear market is very painful. If you have a defensive strategy for bear markets, this book can be useful once the bear hibernates. You must beware of the bear; unfortunately, this book won't protect you from becoming bear food.

Super Investing book:
I've read a bunch of books on investing and money management, and this is the best, BY FAR!!!!! It's so good, and refreshing, that I've read it twice.

Back to Basics:
Steve Selengut's "Brainwashing of the American Investory" is an eye-opening and intelligent book,which at once offers an analysis of the investment industry and a smart and practical guide to non-professional investors. Selengut is wary of the conventional wisdom of investing professionals, who appear to have abandoned the tried and true principles of investment, in favor of super-hype,organizatioanl conformity, and greed. Selengut's back-to--basics approach builds on his critique of the Wall Street hypsters and their bandwagon mentalities. Instead, he serves up a clear set of economic princples, mixed with sound commonsensical advice. The book is simply a gem for someone who is not an investment professiional. We are reminded that one can make money by buying low and selling higher, but importantly, not infinitely higher, since avoiding greed is one of Selengut's most sagacious homilies: " sell too soon." This implies knowledgeable trading, which the book helps one do, but also encourages taking the non-Wall Stree advice of personal investment advisors. The ant-greed model is not however, against making money, but it urges us to do so by taking reasonable profits in a planful way. The Selegut method does require discipline and patience, since it is not a get-rich quick scheme, but one of gradual building of what he calls " working capital" by attentively riding the inevitable market, wave-like pattern of rising and falling prices. The author just does not link our expectations to these waves. Instead, he describes how to benefit from the ups and downs,which requires not only having a plan, but sticking to it. The author's basic ideas of quality, diversity and interest are clearly explicated and very persuasive. That alone is worth the price of the book, which you can deduct from your current working capital: alot more efficient and less pretentious than the new-style, old-time, economic self-help books that tell you how to get rich quick. Great book. Professor Philip Wexler, Jerusalem, Israel