In Getting Started in Stocks, Alvin D. Hall (A.K.A. the Professor of Wall Street) aims to educate the investor by providing the knowledge and background required for success. He does not argue that his way is best, or make claims to teach the reader how he can beat the market. This is not a get rich quick scheme or a book written by the author strictly to make him rich.
As the title suggests, this book is all about the basics of investing in the stock market. The topics are laid out in a logical progression in such a way as to present an encyclopedic amount of knowledge in an easily digested fashion. In short, this is an often dry but complete introduction to the terminology and concepts every investor should know (and few probably do).
Do you know the difference between Common Stock and Preferred Stock? Do you know what a Derivative is?
Neither did I.
Those are only a couple of the things I learned from this book.
IN THE BEGINNING.
The book begins with the basics of investing. Notice I didn’t say the basics of stock picking or stock trading. It begins where investors should begin: Setting Goals. What good is investing when you don’t have a goal or a strategy to go about selecting the stock in which you are going to invest your hard earned money? And no, to “make buckets of cash” is not a sufficient goal 
Also covered in the first section of the book are the different categories of stocks (Growth, Income, Value, Large Cap, Mid Cap, Small cap..), different types of risk as well as the concept of risk vs. reward. The author covers the means and methods of formulating sound investment strategies, and analyzing individual stocks. He covers various aspects of dividends, including the numerous related dates: Declaration Date, Ex-Dividend Date, Record Date, and Payable Date.
Capital Gains, Market timing, Buy and Sell Signals are all covered as well, but he makes key distinctions that a lot of people miss. For instance, Fundamental Analysis is used to determine if the company (stock) is worth owning, while Technical Analysis should be used to determine the best time to buy the stock. Many people get caught up in an argument over which method is best, and completely miss the fact that they are complimentary techniques. Likewise, he spends some time on the differences between being a Speculator vs. Investor, but illustrates that either one can be prosperous.
He uses clear and concise examples to illustrate Stock Splits, Par Value, Tender Offer and IPOs. Concepts like Buy and Hold vs. Trading are illustrated through the use of anecdotal vignettes highlighting various fictitious “investors” and how they use each technique to accomplish their goals.
THE BASICS OF BUYING AND SELLING STOCKS.
The next section of the book details the process of buying and selling stocks.
Here the author covers basic concepts like Bearish vs. Bullish, but quickly gets into some more esoteric (to me) topics like Covering a Short Sale and Buying Stocks on Margin.
But this section is chock full of important terms and techniques every investor who operates outside of a company 401(k) type of plan should know: The difference between keeping the stock certificate in your name, or the brokerage’s name (A.K.A. the Street Name). Another important topic covered here is the 3 types of orders: Market Orders, Limit Orders, and Stop Orders (or Stop Loss Orders).
These are things every DIY investor needs to understand, but many do not.
He also covers the various fees and commissions and general costs associated with different types of brokerage firms – full service vs. discount.
INVESTMENT STRATEGIES.
This is the big picture portion of the book. After taking the reader through the nuts and bolts of investing and preparing the reader, Mr. Hall covers the strategic part of investing. He outlines various approaches to investing, ranking them from least speculative to most speculative – from Buy and Hold to Buying Short on Margin.
He does a good job of outlining the factors that every investor should use to determine the best strategy for the investor, given his style. For example, if you don’t have the time and inclination to read numerous financial news reports and keep tabs on individual stocks, then active trading is not for you. You should opt for a more passive approach. In the section regarding passive investing, Hall covers the magic of Compounding from dividend reinvestment (DRiP) plans and the difference between Buy and Hold and Buy and Neglect.
Also covered are basics like Dollar Cost Averaging, Asset Allocation and Portfolio Re-balancing, Constant Dollar Plan (where the investor’s asset allocation is kept to a specified dollar amount) and the more familiar Constant Ratio Plan (where allocations are kept to a specified percentage of the total portfolio).
Hall ends this section of the book with a discussion of using “paper trading” to simulate investing as a means to gain experience without putting real money at risk. There are many websites that offer this functionality. The one I use, and find quite easy to use, is Investopedia’s Fantasy Stock Market Simulator.
BUILD A STOCK PORTFOLIO OR INVEST IN MUTUAL FUNDS?
The book ends with the age old question “Should I invest in mutual funds, or individual stocks?”
To which the author replies: “How active do you want to become in stock selection and management?”
This portion of the book outlines the differences between Mutual Funds and Stocks, while defining the jargon common to mutual funds like Net Asset Value (NAV) or Bid Price and Public Offering Price.
His recommendations for each boil down to sound, simple advice (which is another reason I liked this book). For stocks: Buy what you know. For mutual funds: Choose funds in your target category that have out performed their respective bench marks for long periods of time (5-10 years) and buy funds run by managers with strong track records.
For most people though, he gives advice that has been echoed in many venues: Invest 90-95% in a mutual fund and the remainder in individual stocks.
CONCLUSION.
This book is a must have for anyone interested in learning about investing and beginning to invest. If you’ve thought about investing, but have never taken the leap – read this book first!
I would also recommend this book for those who are not new to the investing scene as it serves as an excellent source to fill in the gaps that we all have.
[...] first glance, this book seems very similar to Getting Started in Stocks by Alvin D Hall, but this book is not nearly as nuts and bolts about investing as is Hall’s [...]