Editor’s note: We’re pleased to be rolling out a summer series on investing books. Each week we’ll be reviewing two books — one classic, one a bit newer. Our editors and contributors will offer their perspective on some popular titles. We hope you find some inspiration.
Although I’m in my 20s, and I know I should be taking on risk to grow my money, like many of my generation, I’m leery. So while I found myself with a job editing at 24/7 Trader — a subset of InvestorPlace that offers daily trading ideas — I feel like trading options and speculating on stocks du jour like Tesla Motors (TSLA) would be about as likely to make me rich as posting videos of my cats on YouTube.
I love my cats, but it’s a long shot.
So I was surprised to find myself agreeing with a lot of what Nelson had to say in his trading primer. In fact, much of his advice — and Charles Dow’s selected editorials, which Nelson includes with annotations — is much more aligned with what we would now consider value investing. Buy low. Sell high. Don’t trade against the trend. It’s pretty basic stuff that even conservative retirement-ready investors could agree with.
Yes, Nelson goes over certain predictive price patterns, and explains how to get a read on what insiders are doing — but his general theme is to take a calculated, slow approach to trading. He advises against over-trading, and recommends avoiding the hoopla of tipsters and insiders — even devoting a whole chapter to the argument that a speculator who lives far from New York “who, in short, treats his speculation as an investment” might actually have an advantage.
Of course, in 1903, traders around the country didn’t have the down-to-the-second tickers available online, but the same principle holds true: Patience and a strict strategy tend to yield better returns than reacting to daily noise.
Although certain examples are now outdated — railroad stocks, for example, aren’t the speculative play they once were — Nelson’s advice is just as true today as it was in 1903. Granted, I’m fairly new to the market, but from the fiscal cliff panic to the more recent Fed tapering scare, it seems like Nelson’s recommendation to avoid a reactionary trading style is a good one. For their portfolios’ sake, perhaps traders should go back to basics with Nelson and Dow (specifically, the handy cheat sheet of dos and don’ts in Chapter 34).
The ABC of Stock Speculation is available in Kindle, hardcover and paperback editions, but if you’d rather save that money for a trade, the book has outlived its copyright and is available for free online in ePub and PDF format, which can be viewed online or on most mobile devices.
Carla Lake is an Editorial Assistant at InvestorPlace Media. As of this writing, she did not hold a position in any of the aforementioned securities.