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Book Review: The Brainwashing of the American Investor

Time for another book review!  Are you guys getting bored of these yet?  My last book review was a bit "out there" for MDJ, but this one is back on track. 

Today's review is on a book called "The Brainwashing of the American Investor:  The Book that Wall Street does not Want You to Read."  The author Steve Selengut contacted me a little while back to help spread the word on his new book.  Lets see if the word will be good or not so good..

Who is Steve Salengut? 

Mr. Salengut has been a Professional Investment Portfolio Manager since 1979. He is unaffiliated with any Brokerage Firrm – Separate Accounts Only, & No Open End Mutual Funds.  He holds a BA Business and an MBA in Professional Management.

What are the main points made by the book?

  • Wall Street does not have your best interests at heart.  Most of the products offered by Wall Street is to line their own pockets.
  • Income generated from your assets is more important than their market value.
  • Buying quality stocks (that pay a dividend) at a discount and trading them for small profits is the key to great returns.  The book shows you how to go about picking "quality" stocks.
  • Mr. Salengut firmly believes in profit taking (opposite of buy and hold).

What I liked?

  • I enjoy reading conspiracy theories and why mega corps make you live in fear so that they can make more money.
  • I like the idea of contrarian investing along with the idea of investing for income instead of portfolio size.
  • I appreciated the detailed spreadsheets included within the book creating your watch list and tracking your trading.

What I didn’t like?

  • The author doesn't include his track record and proof that his strategy beats the market.
  • The author promotes buying quality stocks as they are on a down trend, but what about the rule "Never try to catch a falling knife?"  Why not wait until the stock starts to turn around from a correction before buying?

Final Thoughts:

  • This hardcover book is a great read for those interested in trading the markets.  I enjoyed the fact that the book provides insights and stock trading strategies that are against the grain of wall street.  
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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 13 comments… add one }
  • 10kPortfolio December 5, 2007, 6:15 am

    You do read a lot of books! At least that is a good thing. What am I doing up? It is almost 1:00am!

  • FrugalTrader December 5, 2007, 9:53 am

    10k, I can’t say “no” when publishers contact me offering free books for review. :) Stay tuned, there are more book reviews in the pipeline.

  • Len December 5, 2007, 10:41 am

    Nice review – Chapters and Amazon do not have this book in stock and the Publisher wants ~$25 to ship to Canada.

  • FrugalTrader December 5, 2007, 11:02 am

    Len, stay tuned for tomorrows post where you’ll get the chance to win a copy.

  • Cross the river December 5, 2007, 1:24 pm

    Sounds a lot, and I mean A LOT, like the Intelligent Investor from Benjamin Graham.

  • FrugalTrader December 5, 2007, 2:46 pm

    Cross the River, yea, you are right to a certain extend, they have similar philosophies but not exactly the same. For example, Selengut would recommend buying when a strong stock is 20% below it’s 52 week high and buy on the way down. Graham would base his purchasing on low ratios of strong stocks. On the selling side, Selengut would recommend selling after 10% profit, where Graham would say to sell after 50% gain or 1 yr (whichever came first).

  • Jonathan December 5, 2007, 10:40 pm

    Interesting, I don’t know if I would ever be able to stomach placing my priority on income than the assets value. I’ve seen some stocks with nice dividends, but I’ve always taken into account the gain and loss of the asset in relation to any income it generated.

    Perhaps this is a more acceptable strategy to a person with millions who’s looking for income? Thoughts?

  • messels January 28, 2008, 8:13 pm

    i disagree w/ jonahthan’s comment. the underlying value of the portfolio may decline when you need the cash (for general cash flow purposes) and if you’re solely relying on a rise within the underlying security, the timing may be off. in fact, it could be at the bottom, well below your purchase price, when you need the $$ most. but, if the investment is not merely an appreciable asset but also something that generates income, there’s little reason to let it go.

    i’m not quite following what the author is prescribing [so i should pick up the book], but this is what i’m hearing: go for income stocks but trade them on minor gains. my problem is that if you’re trading out on asset appreciation, doesn’t that defeat the purpose of having income-holds? besides, some of the holdings i have pay out more than 10% as it is, so the author would [probably] make an exception for that situation. is anything like that addressed in the book that you could speak to?

    i think a focus on long-term cash flow (for me, not the company) is way more important than wallst. implies since it’s the only half-way reliable to make money in the market. is that the “brainwashing” that the author is focusing on?
    i mean, aapl just went to $200. some poor guy bought at $200 thinking, “well the analysts have $225 as the target, so i’m good to go.” that ‘investor’ is only concerned about asset appreciation. but, if everyone starts selling at the same time (as we’ve seen) the price drops like a rock. so the asset appreciation didn’t occur. (obviously this doesn’t apply to traders who are looking for this type of price movement). flaunting “buy” ratings seems like the big-brainwashing at work…

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