The Hindu Business Line : A coach you can bet on!

ZEE has suddenly fallen in love with football. Does that mean we can take investment lessons from a football coach like Joe Moglia, who wrote `The Key to Winning Football: The Perimeter Attack Offense'? If you're sneering, let me add that Joe is the CEO of Ameritrade, "one of the largest online brokerage firms in the world". And, here's his new book "Coach Yourself to Success," from Wiley (www.wiley.com) , on `winning the investment game'.

It may help to know that "Joe grew up seeing what it is to struggle financially, and to worry about not having enough money to get by, let alone to save and invest". His book, therefore, is for "average people who find it overly complex to handle their own investments, so they either pay others a lot of money to do it for them or, worse yet, don't even have a portfolio in place."

The world of investing is a lot like sports, though some of it as dull as watching paint dry, writes Joe. Thus, the first part of the book, which may seem boring, is about "the building blocks of investing and the primary types of assets"; and the second part is `the fun part' because it lets you see "how the pieces of the puzzle come together".

In a section titled `spotting a stock that is ripe for the picking', Joe says it is wise to do some research on your own, despite there being scores of experts' recommendations. You may snap back that accounting principles are difficult to grasp. And Joe waves that objection aside to say, "You don't need to be a certified public accountant or financial planner to spot a promising investment."

The author handholds you and offers essential lessons such as, computing P/E ratio and analysing it. "Don't be guided solely by the most recent earnings, since one or two quarters may have been exceptionally good - or bad - and may not reflect general performance," cautions Joe. For growth stocks, look at the rate at which profits grow, he advises. "Ideally, the P/E ratio should be lower than the growth rate, which means the stock is undervalued."

First rule of investing is to have a mix of sectors and sizes. "Morningstar recognises 12 sectors, viz. software, hardware, media, telecom, healthcare, consumer services, business services, financial services, consumer goods, industrial materials, energy, and utilities," informs Joe. Specific industries are mapped to one of the 12. And 12, again, is the number of large companies that Charles Dow and Edward Jones chose in 1896 for publishing `the daily status' of stock prices. "The list grew to 30 `blue chip' companies and became known as the Dow Jones Industrial Average (DJIA). The only company of the original 12 still in the DJIA is General Electric."

Day-trading thrills, but consistent success in it is difficult, points out Joe. "History shows that if you jumped in and out of the market in an attempt to anticipate market upticks, over time, you would have lost a great deal of money, compared to a buy-and-hold investor," is a line of warning for those who are `forever trying to time the market'.

In the chapter on cash, the author explains the difference between APR (annual percentage rate) and APY (annual percentage yield), in the context of savings bank accounts. APR is what the bank pays you as interest, but APY, `the actual return', depends on APR and the frequency of interest payment, explains Joe. Bankers may not be happy to know that Joe advises against saving accounts by explaining how if taxes and inflation are factored, customers actually give more than they receive. "Even for just a rainy day fund, there are wiser and equally safe places to keep your money," counsels Joe.

He cites the saying, `Failing to plan is planning to fail,' and adds that a person facing the future without a plan is like "a coach without a playbook: lost, anxious, and at the mercy of fate." Planning for retirement is essential because "you want your money to outlive you," and "you don't want to cut it so close that you end up spending your last dollar on your last day." Joe draws attention to famed football coach Vince Lombardi's line, "We didn't lose the game; we just ran out of time." Not so with saving and investing, says Joe, because you do lose the game if you run out of time before achieving your goals. Apart from retirement needs and children's education worries, there are also `lifestyle goals', such as "a second home, a new car, or extravagant vacations".

To find money for these goals, Joe spots `five simple ways', including the identification of the best mortgage, picking up the right credit card, and opting for the most cost-effective phone plan. Know your risk tolerance through a quiz in the book, also available at www.amerivest.com. And remember: "Don't relinquish total control to any one else."

** A coach you can bank upon!

BookValue@TheHindu.co.in

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