Financial Statements: A step-by-step guide to understanding and creating financial reports

Consistently wih my background of old-style, rock-solid engineer I’m very weak on economy and finance topics. Trying to filling these gaps I’ve stumbled upon this book, “Financial Statements” by Thomas Ittelson (ISBN: 1564143414), a businessman with a scientific biomedical backgroud. I definitely can understand them too I thought.

In fact I understood them, the text is a very (very) basic one, but it gives all the main principles needed to interpret financial reports. The book brings also a complete case which illustrates main transactions and how evaluate performance basing on ratio analysis. 

The book is perfect for a newbie who wants to approach these topic, even if he’ll have to look somewere else to complete his competences with some real world concepts (for example EBIT and EBITDA are not cited, not with these acronyms at least). Worth of the 10$.

Irrational Exuberance

“Irrational Exuberance” is a quote which Alan Greenspan used during the stock market boom of the 1990s. The homonymous book, written by Yale’s professor Robert Shiller, goes against the theory of efficient market and explains that the stock market can be overpriced because of hype triggered by different factors such as media promotions, technology innovations and so on.

Shiller describes common investors’ behavior by showing main speculative bubbles’ bursts happened during stock market history and he reports some interesting quantitative data. In my opinion this is the most valuable part of the book, stock prices and dividends are compared through almost a century (the 1st edition of this book was published before 2001 dot-com bubble’s burst) and price/earning ratio charts show clearly overpricing phenomena before market crashes (interesting also the “negative bubbles”, referring to underpiced phases of stock market).

The chapters in which the author warns about the risks of investing, especially the retirement contributions, in stock market are, in my opinion, interesting but somewhat messy and not strongly argumented. I also had the feeling that sometimes Shiller has been over-catastrophic to impress the reader.

In conclusion I’d say that this book is really worth the reading and very easy to understand also for people with no economical background as me, however I think that a more structured framework in which assess this theory would have made this book more effective.

P.S. A collegue of mine with whom I had a discussion about investing in stock market suggested me “A random walk down Wall Street“, a book which supports the theory of efficient markets. I wanted to stop with economic books for a while but this will be the very next one when I’ll start back.

Laws of the Game: How the Principles of Nature Govern Chance

This book was promising, from the Amazon’s description:

“Using game theory and examples of actual games people play, Nobel laureate Manfred Eigen and Ruthild Winkler show how the elements of chance and rules underlie all that happens in the universe, from genetic behavior through economic growth to the composition of music.”

Despite the appealing introduction LotG was a delusion. I wasn’t able to find a main theme and not even a common approach in describing different arguments (sometimes games are brought as example and some time not, randomly). 
When I don’t like a book a feel (at least a little) guilty but, in my opinion, this one is very weak…

The Long Tail (How endless choice is creating unlimited demand)

Keeping on reading border-line economic books, I’ve tried this one from Chris Anderson, the editor in of Wired Magazine.

The Long Tail is about market niches and how they can be profitable in a scenario with low distribution costs (as iTunes, Netflix and so on…).

Typical long-tailed graph (ex. x-> products and y->sales)

Longtail image refers to the sales trend in which high sales (on the y-axis) are concentrated into top sellers (the green-coloured part) which are the ”Hits” or the “Blockbusters” but a relevant part of sales’ volume (which corresponds to the area) is present also in the long tail going rightward (yellow coloured). Usually these niche’s products cannot be sold by classic bricks-and-mortars shop but they can be sold by online store (as niche music for iTunes or whatever products for eBay) where handling cost tend to zero and you have no shelving costs. The book relates this effect also to democratization of production’s tools (as cameras or recording equipment) and of distribution (as eBay, self-publishing tools or YouTube).Suggested, also for the chapter about Wikipedia, where Long Tail applies on the supplier side rather than on the demand side.

La decrescita felice (The happy decrement)

The last book I’ve read is “La decrescita felice” by Maurizio Pallante (unluckily I don’t think it’s available an english translation). The author criticizes the current economic model, based on the GDP growth (PIL, in Italy), affirming that an increase of this index doesn’t imply an improvement in life’s quality of people. Pallante sustains this argument by showing many examples which lead to an increase of GDP but they worsen life conditions (one example among all: traffic jams in cities).

The critic is absolutely reasonable and a new economic model is proposed to release economy from the logic of growth (it’s funny when the author quote governments which don’t even talk anymore about “decrease” when GDP decrements, as if it was a taboo word, but they’ve coined the expression “negative growth” ?!?!); this new model focuses on good production (something to be consumed) instead of stuff production (something to be sold). By the mean of a sober consumption and recovering the concept of self-production, people is able to live (better) with less money.

I think that this idea is very interesting and I agree on the arguments against the actual economy. On the other side, while I agree on reduction of consumptions, I wouldn’t emphasize self-production as a solution for the problem (beside some particular case like the one of old people assistance or children care). I strongly support the goods production specialization (I don’t want to make my own yoghurt, I want to buy it from someone else which is better than me!).

A stimulating text which deserves to be read and thought about.