I have decided to do  book reviews on some select accounting books. The most recent book I have read is Financial Statements by Thomas Ittelson. Ittelson has an interesting bio for someone who writes a  book on accounting. According to the book “Thomas R. Ittelson is a scientist, businessman, author and teacher with many years of hands-on experience in business development and marketing for technical companies. As a consultant to entrepreneurs, Ittelson has written business plans and prepared financial projections that have helped raise more than $500 million in start-up equity capital. Financial Statements was born from the author’s efforts to teach client entrepreneurs how to design and use financial statements in their start-up businesses.”

I will start off by saying that the last paragraph of his bio is what makes the book great for beginners. Ittelson is not writing this book for sophisticated investors who have extensive knowledge of financial statements. The book is meant  people who know absolutely nothing about accounting. The authors goal is to  teach them how to create their own financial statements. This book is ideal for people running their own business who want to learn how to create balance sheets for their own businesses.

I actually enjoyed reading this book which I can say is almost never the case for any accounting book I read. This is also probably due to Ittelson’s unique background instead of an accounting professor writing a book in a boring manner.

This book is also great for new investors. Ittelson explains in simple terms. To give an example he starts off with Assets=liabilites+ owners equity. Anyone who knows any accounting knows that is one of the most basic equations in accounting. If you want to be a real investor you have to know how to analyze the balance sheet, statement of cash flows, and income statement. This book will not tell you the nitty gritty of analyzing complex financial statements but it will get you started on the path.

The whole book goes through the life of a small company that produces apple sauce.  Ittelson explains how the company purchases equipment, a plant etc. starts marketing and selling its products and finally deciding on future plans to grow the company.

What is great about the author’s book is he goes through a simple transaction and shows how it effects all three financial statements. For example the company buys a $250,000 machine and pays half up front with the rest due after installation. The company now has $125,000 less cash on its balance sheet and $125,000 more of Property, Plants and equipment.  At the same time this transaction shows up on the cash flow statement under PP&E purchases and lowers the ending cash balances. This is just one example of how the author explains to beginners how to read or even construct a balance sheet.

To read the rest of my book review on Guru Focus click here

To purchase this book on Amazon.com click on the following link Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports

Robert Pozen

This is my ninth book review on the Financial Crisis. To see my previous book reviews view my previous articles. My Most recent Book is TitledToo Big to Save? How to Fix the U.S. Financial System by Robert Pozen.

Robert Pozen has worked in numerous roles in the Government and private Sector. He is currently chairman of MFS Investment Capital, which manages more than $170 billion in assets for mutual funds and pension plans. He is also a senior lecturer at Harvard Business School. He also worked many years at Fidelity investments and held a senior position at the company. Pozen also played a role in Government which included working for the SEC, President Bush’s commission to strengthen social security and under Mitt Romney as Secretary of Economic Affairs. Robert Pozen’s opinions deserve serious attention. In late 2008, Pozen was rumored to be on the short list for SEC chairman.

The first thing one can see from the book is how much of a genius Robert Pozen is. He has a clear grasp on many complex issues facing the US and world economy. Too Big to Save is probably the best book about financial reform written so far.

The book consists of several parts. Too Big to Save off starts with an explanation of the housing slump and financial crisis. Robert Pozen then discusses the impact the crisis had on stocks bonds, and money market accounts. Robert Pozen provides the readers with an in depth analysis of TARP. Pozen ends off the book with the future of the American Financial system.

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To read the Rest of the review see my column on GuruFocus.com Too Big To Save Book Review

To purchase the book on Amazon.com click on the following linkToo Big to Save? How to Fix the U.S. Financial System

My next book review will beMr. Market Miscalculates: The Bubble Years and Beyond by James Grant. Following that I will be reviewingOn the Brink: Inside the Race to Stop the Collapse of the Global Financial System by former Treasury Secretary Henry Paulson. I am very interested to hear Hank Paulson’s account of the financial crisis.

Disclosure: New FTC guidelines require me to disclose I have a material connection because I received a free copy of the book to review.

Video of Robert Pozen discussing Too Big To Save.

Seth Klarman

Seth Klarman and Joel Greenblatt have a lot of things in common. They both are extremely successful value investors who have a long record of beating the market by wide margins. Both are widely followed in the value investing community and are very popular on GuruFocus. Both of them run large and successful hedge funds. One last similarity between the two is the both are excellent authors. Joel Greenblatt wrote two books, the more in depth of the two being titled You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits. Normally when you see the title of a book with such a pompous statement you should run in the other direction as fast as possible, however this book is accurately described by its title. Seth Klarman wrote a book nearly 20 years ago titled Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor. Both are excellent books about investing in obscure securities that are unwanted and not analyzed by others.

Joel Greenblatt and Seth Klarman have many things in common but here is where their paths diverge. Greenblatt’s book is selling on Amazon for $10 while Klarman’s is selling for $1200. For those of you who have not read Klarman’s book I will give you an outline of it. The first part of the book Seth Klarman discusses how markets are not efficient, bubbles and the difference between speculation and investing. In the second part of the book Klarman discusses investing with a margin of safety, and refutes the common myth that to get more return you need to take more risk. The third and last section of the book is where Klarman discusses how actually to find securities that have higher returns. As I mentioned in a [www.gurufocus.com] Klarman is not a classic low P/E, high dividend etc investor. He tries to look for areas with the greatest inefficiencies in the market where most institutional investors are unwilling or unable to invest. Some of these situations include spinoffs, asset sales, overcapitalizations and liquidations. Klarman provides a few examples but overall his book is scant on details.

Joel Greenblatt in his book You Can Be a Stock Market Genius writes a similiar book. He mostly skips the first two sections of Klarman’s book and focuses almost exclusively on the last section which discusses how to find value in special situations. Greenblatt touches many of the topics with a large and detailed section focusing on spin offs. Greenblatt gives many details of previous spin off situations and how to profit from them. He discusses how currently certain areas such as bankruptcies have become so crowded with sophisticated investors looking for value, that it is very hard to earn high returns in these situations.

Overall I was disappointed after reading Margin Of Safety. After expecting for months to find the famous, incredible book I finally found it. However, I was disappointed after reading it. The first two sections of the book give good advice, however any good value book such as The Intelligent Investor could be a substitute for it. The last section of the book offers good advice but is meager on detail. I think Joel Greenblatt does an excellent job filling in many of those details.

This article is no way a snipe at Klarman. He is an amazing investor and does not need approval from me regardless. I am certain he can write a book with much more examples and details of how to invest in special situations. However, my disappointment was that he did not write a book as I described. If you can get your hands on a copy of the book for a cheap price I would recommend reading it. However if you have to buy it, I recommend buying Greenblatt’s book instead, saving the $1190 and putting into your 401K.

Joel Greenblatt’s book can be found on amazon.com by following this link You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits
Seth Klarman’s book can be found on amazon.com by following this link Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor