Dollar Wise Penny Foolish

Dollar Wise Penny Foolish would make a nice textbook for an MBA Finance class. The book, written by Siva Nara and Priya Raghavan, presents financial concepts in an easy-to-understand fashion through fiction. The fiction part of the book is understandably a little weak but the financial part of it makes it a worthy read for someone looking for an introduction to the stock market or some guidance on investing.

The book essentially provides tips to long-term investors on what to look for when picking the companies to invest in. It stresses the importance of research in investing and points us to the metrics we need to look for in each company before investing our hard-earned money. It starts off with simple terms like profit and EPS before moving onto margins, yields, etc. Interspersed with this are some interesting facts, nice trivia, historical details and famous quotes that provide some extra knowledge too. For instance, inspite of looking at the index everyday, I didn't know what the acronym NASDAQ stood for until I read this book (it stands for National Association of Securities Dealers and Automated Quotations).

The book follows a nice template for explaining each of the things we should look at before investing. It first provides a simple example with smaller numbers to show us exactly what the term means. It then provides numbers for real companies in the real world to back up its claims of how that particular term determines the suitability of the company for investing. In this way, it comes up with a set of conditions a good company has to meet to be a good target for investing. Ofcourse hindsight is always 20/20 but its still interesting how troubled companies that we're familiar with(Enron, for instance) were actually unsuitable investment targets when one really digs into their past numbers.

The 'fiction' part of the book comes from the way these financial concepts are presented. We get a finance whiz Sam, who explains the concepts to his friends(and eventually, a lot more people). and we follow Sam as he woos Jessica, gets into an accident, attends a job interview, etc. He delivers his talks in a variety of situations like casual conversations, seminars, job interviews, etc. and throws in some quizzes too. The authors add something nice at the end by providing three different scenarios for how the romance between Sam and Jessica ends. One of the scenarios has a really neat marriage proposal that fits the book's subject too.

I just wish I'd read this book before I made all those investments during the stock market boom 7 years ago :-)