The issue of finance is very critical to the day-to-day operation of corporate organisations. Therefore, everybody needs to be financially knowledgeable. This is why it is important to review this book “How to Read the Financial Pages”, written by Michael Brett. Brett is a freelance financial journalist, former editor of the “Investor’s Chronicle” and a frequent lecturer on financial topics.
According to Brett, this text has for more than ten years been an outstanding first-choice buy for everyone who wants a thorough but friendly grounding in finance and investments. This author says stripping away the mystique from the world of investment and finance, the text is a layman’s guide to reading and understanding the financial press and the markets and events it covers.
Brett adds that assuming no financial knowledge, the text offers a valuable explanation of the workings of the financial world, from money markets to commodity markets, investment ratios to take-over bids.
This text contains 23 chapters. Chapter one is entitled “First principles”. According to Brett here, write about money, and you cannot entirely avoid technical terms. He says the simplest terms and concepts need to be dealt with at the outset because they will crop up time and again. “Fundamental to all financial markets is the idea of earning a return on money. Money has to work for its owner,” submits this author.
He says in summary, money can be deposited to produce an income and can be used to buy commodities or goods which are expected to rise in value but may not, or it can be invested directly or indirectly in the stock market securities which normally produce an income but show capital gains or losses as well.
This author stresses that there are many variations on each of these themes, but you need to keep the principles in mind and the variations fall into place. As regards markets and interest rates, Brett explains that for each type of investment and/or many of their derivatives, there is a market. He adds that there is a market in money in London and it is not a physical marketplace as dealings take place over the telephone and the price a borrower pays for the use of money is the interest rate.
In Brett’s words, “There is a market of currencies: the foreign exchange or forex market. There are markets in commodities. And there are markets in government bonds and company shares: the main domestic market here is the London Stock Exchange. Much of what you read in the financial press concerns these markets, their movements and the investments that are dealt on them.”
He asserts that the important point is that no market is entirely independent of others and the linking factor is the cost of money. This author says if interest rates rise or fall, there is likely to be a ripple of movement through all the financial markets. He educates that this is the most important single mechanism in the financial sphere and it lies behind a great deal of what is written in the financial press: from discussion of mortgage rates to reasons for movements in the gilt-edged securities market.
“Money will gravitate to where it earns the best return, commensurate with the risk the investor is preferred to take and the length of time for which he can tie up his money,” asserts Brett.
Chapter two is based on the subject matter of money flowing and the money men. According to this author here, when a financial journalist describes somebody as “an eminent City figure”, he or she probably means what he or she says because the man may be a senior member of the banking establishment. Brett adds that if a journalist describes somebody as “the controversial City financier”, “he’s probably coming as close as he dares within the libel laws to calling him a financial spiv!”
But what exactly is this ‘City’ which harbours these characters and many more? asks this author. He says it is of course a geographical area on the east side of Central London, often described as the Square Mile, adding that ‘The City’ is more often used as a convenient blanket term for the commercial institutions at the heart of Britain’s financial system. Brett educates that they do not necessarily operate within the square mile of the City of London, though a surprising number of them do.
He says they provide the financial services that oil the wheels of industry and trade. According to him, one of the more common criticisms of the City is that it is too remote from Britain’s own productive industries. Brett says whereas some parts of the City have always been international in outlook, the big change of the last 20 years is the internationalisation of even the most traditional domestic institutions such as the London Stock Exchange. “The City is a major source of invisible earnings for Britain’s balance of payments. Financial services generated net overseas earnings of almost 32 billion pounds in 1998,” he discloses.
In chapters three to ten, this author examines concepts such as companies and their accounts; the investment ratios; refining the figurework; equities and the stock exchange; what moves share prices in normal times and in the crash of ’87; stock market launches; issuing more shares and buying shares back; and bidders, victims and lawmakers.
Chapter 11 is entitled “Venture capital and leveraged buy-outs”. According to Brett here, to satisfy different financing needs, there has been rapid growth in venture capital funds, organisations that provide finance, sometimes a mixture of equity and loans, but often just one or the other, for unquoted companies.
This author says, “Because it is provided to finance unlisted companies, equity finance of this kind is often referred to as private equity. Many of the venture capital funds are offshoots of existing financial institutions: clearing or merchant banks, insurance companies or pension funds.”
He educates that another tax-favoured investment vehicle designed to encourage risk investment in private businesses is the venture capital trust. A venture capital trust needs to hold at least 70 per cent of its investments in unquoted trading companies: broadly, the same sort of company as would qualify for Enterprise Investment Scheme, adds Brett.
This expert stresses that the venture capital trust itself is much like an ordinary investment and must be quoted on the stock exchange.
In chapters 12 to19, the author analytically X-rays concepts such as pay, perks and reverse capitalism; government and company bonds; banks, borrowers and bad debts; the money markets; foreign exchange and the euro; international money; financial derivatives and commodities; and insurance and Lloyd’s after the troubles.
Chapter 20 is entitled “Commercial property and markets crashes”. According to this author, commercial property (that is, office buildings, shops, factories and warehouses) has been one of the major avenues for investment by the insurance companies and pension funds. Brett adds that it was less popular at the end of the millennium than it once was.
He says there is, however, no central marketplace in commercial property, stressing that the “market” is largely organised by the major firms of chartered surveyors or estate agents. Brett expatiates that these firms provide a range of property investment services. “They advise on property portfolios, often manage portfolios on behalf of institutions, provide valuations, negotiate lettings, purchases and sales and assist in arranging finance for developments,” adds the author.
In chapters 21 to 23, Brett beams his intellectual searchlight on concepts such as savings, pooled investment and tax shelters; supervising the City; and the financial pages as regards print and Internet.
As regards style, the book is a success. For instance, the book is well presented and the language is standard and simple, thus enhancing easy understanding of the subject matter in spite of the technicality of terms. The stylistic success is expected, given that Brett is a freelance financial journalist and by implication, a financial communicator.
The depth of research of the book is also commendable.
However, the definite article “The” constitutes structural redundancy in the title of the book. That is, the title should have been “How to Read Financial Pages” not “How to Read the Financial Pages”.
Generally, this text is a masterpiece on financial education. It is highly recommended to anybody that is ready to broaden his or her knowledge financially.
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