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4.4 out of 5 stars
Choose Stocks Wisely: A Formula That Produced Amazing Returns
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52 of 57 people found the following review helpful
on November 20, 2013
Format: PaperbackVerified Purchase
Couple comments

1. I'm not a beginner. Been doing this for years, but frankly have way too much cash and I needed a jumpstart to find ideas. So my perspective is much different than many posters here.

2. Like the vast majority of self-published investment books, this one is very clumsily written. Sorry, but the text could have used an editor and the juxtaposition of religious themes and investment philosophy is downright bizarre at times. Believe me, I'm NOT questioning including faith in a book like this but at times this almost comes across as a prosperity gospel of investing in stocks which is odd in the extreme. This text is in dire need of headings. While little text boxes break up the monotony, a simple heading here and there would have helped the appearance and readability of the text. Finally, speculations about his next book, minutia about how time should be allocated to do each task, and general portfolio advice are either too terse or irrelevant and distracting for the main message.

3. The author apparently never read an investment book in his life. Again, this might be completely off-base, but a casual read of Graham's Intelligent Investor, Lynch's One Up and Beating, and several other classics could have gotten him up the learning curve much more quickly than 2003. Still, this doesn't mean the basic message isn't worthwhile by any means. Lynch wrote that investors should keep close tabs on the balance sheet and Graham was famous for his screening tools. If anything, this book most reminded me of Pabrai's "The Dhandho Investor" with the emphasis on tails I win, heads I don't loose much. If outside references were more closely integrated into this book then you'd have more to rely on other than the author's Fidelity account. Again, I'm not questioning the returns he suggests, but if the book had made it clear that this 'new proven' system was an outgrowth of many other investment philosophies then it would have added more depth and substance to this text.

4. ALL THAT SAID, I gave the book 5 stars. How come? Score one point because despite the chunkiness of the writing the BS analysis is downright insightful, especially if you aren't familiar with balance sheet risk. And this isn't a common observation - as the author rightly points out, most analytical work is based on earnings and PE multiples. So this is a unique approach. Score 3 points because the author provides both a website and in-depth instructions for using his screen to produce a list of actionable ideas. I just used the site and within 5 minutes you've got a list of names to review (most of which are covered by Value Line too). But score 6 points because the author gives you his own website and password to use a spreadsheet to compute adjusted floor prices. Bottom line - this is helpful stuff. And in the end what I want from any investing book is something to help me pick stocks (up to me what happens next), and this fits the bill and was worth my currency. Looked at in the right light, you will profit from it too.

Thanks Dr. Allen - I appreciate your help and willingness to share.

By the way, this is an honest review from an unrelated party. Many of these other commentaries are remarkably similar in both style and substance. I thought about docking a star out of my review for that reason, but I feel like I got more than my money's worth here.
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33 of 36 people found the following review helpful
on January 10, 2014
Format: PaperbackVerified Purchase
I truly respect the author's effort to write this book and unselfishly share his investment strategy, along with free access to his website and its working spreadsheet/stock screener. He is obviously an honest and genuine person, a very successful small investor without any secondary motive. He is not trying to sell a newsletter, a subscription advisory service, holding back information or advertising something else.

But:

- I think this book could easily be reduced by 80% of its volume. Mind you, it is not due to fluff, empty anecdotes, meaningless quotes, "illustrations", but solely due to the tremendously repetitive writing. The author is trying hard to convey his message, but after the third time I think everyone who is attempting to read this book would surely get it. Should you still struggle after the tenth time, little textboxes would still repeat things to aid you along.
- Then, to join a previous reviewer, faith or biblical context should not be part of an investment book. It simply does not belong here. (I would include it in the "About the Author".)
- It is odd that the book cover displays a candlestick chart while the message could not be further from technical analysis.
- The "buy low" philosophy and focus is repeated often enough, but the "when to sell" part should also be part of an investment book. Preferably the same one.
- The balance sheet analysis of small/micro cap companies clearly attacks the Achilles heels of these stocks, yet further guidance regarding momentum, catalyst, head/tail wind, market environment, market segment, investor sentiment or, at least the BVPS growth (or growth rate) should be included. (The author emphasizes decreased weight on earnings, as EPS is only used for "blending" the floor price). My limited exposure to investment literature left me with the understanding that a static analysis is only one element of the evaluation and dynamic components should be included as well. This strategy finds financially "healthy" companies, but what exactly guarantees that they triple their price by next year? How would a healthy balance sheet turn into an earnings rocket? Bo Burlingham's "Small Giants" comes to mind.

Having said these I have to point out a supporting fact as well. When I followed the author's analysis of the stock symbol "RCKY" he concluded an adjusted floor price of $11.75 per share on 3/31/12. The stock reached almost $20.00 per share by the end of 2013.
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8 of 8 people found the following review helpful
on November 26, 2013
Format: PaperbackVerified Purchase
Successful investors are students of investing, always trying to find better ways to avoid losses and maximize gains. As someone on a long term quest to find “the best of the best metrics and methodologies” and explore the most successful strategies, I can highly recommend “Choose Stocks Wisely”. Dr. Allen is an excellent teacher and successful investor, and he is candid in explaining his methodology and how he learned from his mistakes.
Let me say that his methodology is suitable for a portion of your portfolio, as he clearly states, and that is how I intend to use it. My core investment strategy is to “invest in steady and growing income streams from stable companies ….” and I view this as a way to invest for capital appreciation.
As a professor of accounting, Dr. Allen focuses on the balance sheet. He teaches you how to properly interpret the balance sheet and this alone is worth buying and reading the book. In addition, he teaches you how to use certain balance sheet metrics to value stocks in order to implement his strategy. He provides a very useful step-by-step method to screen for stocks that meet certain criteria by using Finviz. The search criteria can be saved and this makes it quite easy to run the screens as often as you like and to vary the criteria as you wish. Finally, he provides an excellent spreadsheet that can be downloaded from his web site. You manually enter certain data for each company you want to value and the spreadsheet automatically makes the calculations.
Besides the practical instructions mentioned above, Dr. Allen explains the development of his strategy in a way that helps you learn how to think along these lines. This is also a valuable part of the book and helps one understand why the strategy works and how to use it profitably.
While this is indeed a conservative approach, Dr. Allen explains that this will tend toward small cap stocks that are not followed by analysts and are unloved by investors. This may well include some “road kill with a pulse” so additional analysis is needed.
My personal suggestion is that investors begin to work with this strategy and trade on paper as a means of gaining a good understanding. Dr. Allen’s methodology and the tools he provides make this quite easy. Someone with the Stock Investor Pro data base and xlq from QMatix will find it even easier.
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7 of 7 people found the following review helpful
on June 23, 2014
Format: PaperbackVerified Purchase
I ordered this book eight months ago because I was looking for a good method for picking stocks, and the title promised to show me how. On page 25 I read this: "My goal is to avoid buying stocks with anything but minor risks. That is, I want the market to have beaten the risk out of the price before I take my position." BINGO! That's what I was looking for. The author, in a clear and straightforward manner and without a lot of unnecessary information, explains exactly how to do that. Other reviewers have mentioned that the book is somewhat repetitive, but in my opinion that was intentional. We learn things well that we see/hear/do again and again. By the end of the book I knew exactly how to use Dr. Allen’s method to screen for stocks, then find a good price for them. The next day I was happily building a list of stocks to do more research on.

So, it’s been eight months; did the method work? I looked back at five of the stocks that I found on the first screening I did after reading the book, and found the following increases between then and now: 141%, 70%, 26%, 40%, and 206%. I don’t say that to imply that any stock that pops up on the screener using this method will do really well; some that I found in that screen haven’t. Readers will need to do their own research into the companies and decide which ones are best, just as the author says in the book. But, if you use the method that he clearly and concisely explains and do your homework on the stocks you are purchasing, you should be very pleased with your results. This book certainly changed my investing for the better and made me much more confident in my choices.
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6 of 6 people found the following review helpful
on July 15, 2014
Format: Paperback
I’m a private investor from Germany and have read about 50 books on investing already, trying to find an investment style that suits best to me. Like so many others I’m fascinated by Warren Buffett’s investment performance at Berkshire Hathaway and tried to find a similar approach based on this mindset. What I realized was that it takes a lot of time for a full time employee to look for stocks that have a competitive advantage, consistent ROE’s and that generate lots of cash flow. It’s not just finding those companies, you have to follow them and be very well informed about the industry the company is in. But the biggest issue I was facing was the valuation question. As Buffett says a business is worth the amount of cash it generates during its remaining life. I think this is why so many people use discounted cash flow methods to calculate an intrinsic value. I’m personally not very comfortable with that since this is so highly subjective.

At the end of 2013 I read “Choose Stocks Wisely” from Dr. Paul Allen which changed my view entirely. Instead of making guesses for the future, the author only looks for whats already present (in the balance sheet) and uses this for determining an intrinsic value. Other than just looking for companies with a price/book value below 1, the author makes modifications first, since we don’t know the real value of assets other than cash. The author also looks for adequate liquidity and solvency. Besides that the companies outlook, the CFO history and other factors are being considered before buying.

To me this was a big refresher, since I thought the time for Graham-like investors was over. This method is not as strict as with Grahams net-nets - the author also takes some non-current assets into account which means there will be more opportunities showing up. I’m more confident using this approach as I know there’s substance behind the valuations and not just guesses for the future that might change more rapidly than you can click the sell button.

Besides that the author has an own blog that is updated and is very responsive upon questions. I’m very thankful, I’ve learned a lot.
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7 of 8 people found the following review helpful
on December 25, 2013
Format: PaperbackVerified Purchase
Hello Everyone,

This is a nicely written book on a simple, yet both powerful and logical way on how to Value Invest. If you invest via Balance Sheet analysis, I think you will feel more relaxed in your investment picks, as they are based on a company's true worth, not hype and momentum.

Paul, if you are reading this, I have one suggestion: Unlock your spreadsheet. You can only look at five stocks at a time, and the column widths are too thin after the first column to see the numbers if the company values are in the 10's of billions.

UPDATE: Paul has updated the spreadsheet. I, and I am sure you will also appreciate the update. Thank you, Paul!

Thank you for the book, Paul. I appreciate your sharing such a logical, yet easy approach to investing.

Regards,

Marc
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8 of 10 people found the following review helpful
on November 2, 2013
Format: Paperback
In this book, the author presents a persuasive argument for adopting a company's balance sheet as a primary tool in choosing investments, demonstrating how it mitigate risks while putting the investor in position for returns that can far exceed the market. The author, a professor, explains his approach in simple terms and provides analytical tools he has developed to evaluate whether a particular stock presents an acceptable level of financial risk at an attractive valuation. He explains his approach in terms that any investor can understand and apply.

I've been investing in the market for 25 years, but only successfully for the last 12. For years, I chased the hottest stock tips and followed analysts' recommendations, only to find that my returns fell well short of a simple index fund. I tried studying and using technical analysis, but my losses still outpaced my wins. My investing success changed, however, when I started to learn and understand company financial statements, and began to develop a value-based investment approach. My "education" involved reading Graham & Dodds' 600-page book, Securities Analysis, and countless other books. I wish I had this book 10 years ago.

It cuts right to the heart of value investing, explains the balance sheet entries essential to the author's investing approach, and distills some complex ideas to some simple, but ingenuous filters that any investor can use to evaluate a company's financial health and determine whether it is a "value" at current prices. The book has helped me further refine my own analysis of companies, and quickly filter through companies to separate the attractive, low-risk investments from the "me too" stocks everyone else is constantly chasing. I am so impressed with the contents of this book that I have bought multiple copies for friends and family, so that they can get their investing on track with a simple, repeatable analytical approach that will work just as well in 20 years as it does now. Great book Professor Allen!
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3 of 3 people found the following review helpful
on March 29, 2014
Format: Kindle EditionVerified Purchase
A great book that identifies how to use the balance sheet as a floor/backstop for managing risk at the individual stock investment level. This book and author's investing style is reminiscent of the famous balance sheet investors (Graham, Schloss, Whitman, etc.) and strongly reflects the liquidating asset concept of Ben Graham in his 1940 edition of Security Analysis. The liquidity/solvency considerations are a real nice emphasis on this perspective and adding other factors mentioned towards the end helps to round out a strategy that could very well achieve the performance Dr. Allen observed for small/mid-cap investing.

A couple of ideas that serve as food for thought.....maybe not for the individual investor, but for the institutional investor, finding stocks that meet the formula requirements will become increasingly problematic as the portfolio being managed becomes larger. Yes, you could probably eventually get to $1 million but are their enough of those bargains to achieve $10, $50 or $100 million? I think Warren Buffett ran into this problem as his portfolio reached such levels and ultimately he transcended beyond what he was taught about balance sheet valuation to find true intrinsic value of intangibles that took him to the next level and solidified his genius and uniqueness in value investing. Nonetheless, the balance sheet is a great place to start and a foundation for intrinsic value.

Second idea is that some of the truly great balance sheet oriented investment plays could come from moving beyond a formulaic analysis that employs a one-size-fits-all strategy to a more granular analysis of the balance sheet. Think how a Bruce Flatt or Michael Price may have seen the true value in forest acreage that had been purchased over a hundred years ago by a company with the asset being listed on the balance sheet at cost. Other capital-intense assets may fluctuate wildly in value depending upon the supply/demand imbalances in the services they provide (tankers for example) or even the price of the commodity they manage (oil, corn, natural gas, etc.). In many cases, a lot of value can be extracted by digging deeper and going beyond the one-formula-fits-all strategy for assets on the balance sheet.

Still, I feel this book points towards what is important and gets us on the right track. It also provides a great distinction between investing and gambling, as well as gives a unique and very powerful perspective on risk management. Take home points are well taken and insights are invaluable and presented in an easy-to-understand fashion. A Great compass for those interested in value investing.
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3 of 3 people found the following review helpful
on March 2, 2014
Format: PaperbackVerified Purchase
This book is nearly a complete strategy for stock investing, written by a CPA who seems to have stumbled on a particular variant of deep value investing on his own, through hard knocks. Were Ben Graham alive today, he would unequivocally approve. At least I think he would: the strategy described is logical, reasonably easy to implement and has an excellent supporting record, as described by the author. Such are the essential ingredients of a Ben Graham style deep value approach.

A carefully articulated method, indeed a formula, is offered (I won't give it away in this review) for selecting cheap stocks. What the author offers is sufficiently --indeed exceedingly generously-- presented so that anyone with a modicum of gumption can begin using the approach at once. As is the case with many other deep value strategies, of course, it will be more difficult to implement the strategy when stocks are trading at generally high multiples.

Some reviewers have commented on the dry and somewhat repetitive presentation. While that's true, the author seems honest and I give the book high marks for the author's obvious desire to give the reader the necessary resources to make his recommended strategy viable with careful, reliable instructions. All the requisite tools for stock selection are essentially handed to the reader.

Alas, as acknowledged by the author, the book does not really describe a selling methodology. While many readers will likely come up with their own viable selling strategy, and a stock well bought is half sold, it is a bit of a let-down the author fails to include his recommended approach to selling. After all, his claimed returns are contingent on his selling rules. But there is enough here to still highly recommend the book.
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3 of 3 people found the following review helpful
on May 5, 2014
Format: Paperback
The reason this book intrigued so much dates back to the time when I was just out of high school and was trying to learn about stocks. I asked my father, who was a CPA, how to find winners in the stock market. He said he never touched the stuff himself but recalled that a client once came to him and said he owned a large position in Fed Ex. The stock was plummeting because the Treasurer had absconded with a large portion of the company funds to parts unknown. Should he dump his holdings for fear the stock might go even lower?

My dad said he would look into it. He analysed of the balance sheet and reported to his client that Fed Ex was deeply undervalued at the current price and was a resounding "BUY." His client not only kept his shares that he owned but added significantly to his position. Needless to say he made a killing.

I have always been intrigued with the thought of buying public companies at fire-sale prices but being an engineer I could not make heads or tails out of a balance sheet the way my dad could until after reading Paul's book. He makes it so simple and mistake proof to a point that after the market closes each night I can't wait to crunch the numbers to see if a nugget turns up. I'm hoping he will come out with a sequel soon to his book.
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