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Wednesday, June 30, 2010
Book Review - Full of Book
Since I like learning about stock investing, I was very excited to go through Full of Bull: Do What Wall Street Does, Not What It Says, To Make Money in the Market in the hopes of learning more about investing. However, after reading the book, I felt that except for a couple of chapters, the book was a bit of a disappointment. Reason? The central idea of the book is that ordinary, individual (retail) investors should be careful about the analyst buy/sell recommendations and not take the Wall Street literally. Despite being a relatively thin book (with 196 pages devoted to the main content), the author keeps repeating this theme throughout the book without going too much into how individual investors can better analyze the stocks.

About the Author

The book is written by a highly experienced and well-known analyst, Stephen T. McClellan. He's a Chartered Financial Analyst (CFA) and has over 30 years of investment analyst experience at various firms, including Salomon Brothers and Merrill Lynch (which is now part of Bank of America). He also ranked on the annual Institutional Investor All-America Research Team for 19 consecutive times. Full of Bull is actually Stephen McClellan's second book, the previous one being The Coming Computer Industry Shakeout. Needless to say, the author has an impressive background and credentials, and his achievements are all the more remarkable considering that the author grew up delivering newspapers while in high school.

About the Book

The first edition (hardcover) of Full of Bull was published in late 2007, with some revisions made for the second printing which was released in early 2008. The latest 2009 paperback edition (which is being reviewed here) was printed in June 2009. It has extensive updates and includes a new chapter on bear market investing (Chapter 4). In all, the paperback edition has the following 8 chapters:

Chapter 1 - Decoding Wall Street's Well-Kept Secrets
Chapter 2 - Understanding Wall Street's Misleading Practices
Chapter 3 - Strategies in Quest of the Ideal Investment
Chapter 4 - Investment Strategies to Survive in a Bear Market
Chapter 5 - Evaluating Companies as Investment Candidates
Chapter 6 - Executive Traits Are a Revealing Investment Gauge
Chapter 7 - How Street Analysts Really Operate
Chapter 8 - Reforming Research to Level the Playing Field

The main point discussed throughout the book is that individual investors should be careful and not trust the Wall Street research. Individual retail investors are an after-thought for research analysts, brokers, and corporate executives who are all primarily interested in professional institutional investors such as pension funds, mutual funds, and hedge funds. According to the author, stock picking is not the analyst's job, and individual investors should not blindly trust the buy/sell recommendations of the analysts as these recommendations are unreliable and often late. As per the author, while the analysts may be good at providing thorough, informative company and research information, their buy/sell rating record is mediocre. Much of the book is devoted to the discussion of these points, and at times, feels repetitive.

What I like about the book?

If you want to know how Wall Streets and analysts operate, this book is it. The book claims to be geared towards individual investors. However, it is better suited for research analysts, and discusses topics like research conflicts, analyst conferences, reading corporate executives' body language, and so forth. For example, Chapter 6 - Executive Traits Are a Revealing Investment Gauge, discusses at length the various types and traits of corporate executives so that you know whether they are being truthful or just hyping the prospects of their companies. However, this chapter is better suited for research analysts since they are the ones who come in direct contact with the corporate executives. Most individual investors will only have indirect and occasional contact with the corporate executives via conference calls, and interviews in media.

That said, most individual investors will like going through chapters 3 and 5 which are the best part of this book. These two chapters focus on important rules about investing. The list of strategies/rules is fairly comprehensive, very useful and informative, and worth reading. Some of the important points discussed in this chapter are:

- Protect your capital
- Own only few stocks and invest for the long term in dividend-paying stocks of financially strong firms
- Pursue healthy, stable or expanding profit margins
- Avoid IPOs and turn-around plays
- Prefer smaller firms over bigger ones
- Avoid firms with weird stock structures or sweetheart management setups
- Look for steady expansion of revenues, not just profits

What I dislike about the book?

As mentioned earlier, except for couple of chapters, this book does not provide much new information for becoming a better investor. The fact that individual investors should not naively buy into the advice of Wall Street feels overly repetitive by the end of the book (as it does also probably in this review).

Final Word

Overall, Full of Bull is an ordinary book from the perspective of experienced individual investors. The book does have a couple of useful chapters which discuss many strategies that are especially useful for novice investors

Interview with the author

I have received complimentary copy of the book. Please also see Disclosures and Disclaimer

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posted by Little Rishi @ Wednesday, June 30, 2010  
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