The Conscious Investor: Profiting from the Timeless Value Approach (Wiley Finance) [Hardcover]

John Price (Author)

Book Description

Publication Date: October 26, 2010 | Series: Wiley Finance (Book 586)

An intriguing look at the full range of value methods brought together for the first time

The biggest block to success in the stock market is unconscious investing, or following the crowd without asking the right questions such as: “What is it really worth?” Even more fundamental is: “What rate of return can I confidently expect to get?” Without having the methods to answer these questions is like trying to sail a boat without a rudder.
The Conscious Investor covers each of the main methods used to calculate value or return in the stock market, along with descriptions of how and when to use them, as well as their strengths and weaknesses. Interspersed throughout the methods are the timeless investment principles of Benjamin Graham and Warren Buffett. The book:
•    Includes balance sheet methods, dividend discount methods, discounted cash flow methods, price ratio methods, and many others
•    Explains the significance of viewing real value as a combination of a stock’s price or market value and its intrinsic value
•    Comes with free access to key functions in the author’s Conscious Investor® software
The Conscious Investor is indispensable reading for everyone with an interest in investing in the stock market, from novices to experienced professionals. Using this book as your guide, you’ll quickly discover what it takes to be a conscious investor and gain more confidence in knowing what and when to buy, when to hold, and when to sell.

Editorial Reviews

From the Inside Flap

The United States is experiencing "the worst financial crisis since the 1930s," according to George Soros. But you don't need one of the world's greatest investors to tell you what you already know. What would be useful is knowing how it is that he and other astute investors—Warren Buffett, Benjamin Graham, and Peter Lynch—made a great portion of their profits during times of extreme economic uncertainty. The short answer is: successful investors know which stocks to buy and when, as well as when to hold and when to sell. How do they know these things? The Conscious Investor: Profiting from the Timeless Value Approach provides the answer—stock valuation methods.

As an investor, if you're unable to measure a stock's true value, then it's all but impossible to know whether your purchase is likely to prove profitable. Your "unconscious investing" makes your hope for a financially secure future just that—a wish left to the whims of a fickle financial market. In The Conscious Investor, Dr. John Price describes the quantitative methods investors like Buffett use to determine value and, thus, whether or not an investment will make money. Dr. Price details:

• Intrinsic value and ways of measuring it

• Price-setting mechanisms and influences in the stock market, as well as the difference between pure price theories and fundamental data theories

• Real value as a combination of intrinsic value and price

• Accounting and the role of financial statements (balance sheet, income statement, cash flow statement, and equity statement) in providing data for valuation methods

• Off–balance sheet obligations

• Key financial ratios in analyzing and filtering companies

• Over 20 valuation methods, including each of their strengths and weaknesses

Despite turbulence at the surface of "the worst financial crisis since the 1930s," investors like Buffett, Soros, and Lynch understand that underneath the uncertainty, they're still dealing with real businesses with real products and services, and that it's possible to profitably invest in them using timeless valuation methods. With The Conscious Investor, you'll know how the great investors profit from uncertainty. You'll begin the process of transforming yourself from a speculative hopeful into a wealth winner.

From the Back Cover

Praise for The Conscious Investor

"The Conscious Investor is an extraordinarily comprehensive and intensive study of valuation methods. John Price lays out all the approaches to identifying mispriced stocks and systematically details their comparative strengths and weaknesses. The result is a book of exceptional practical value for serious investors."
--Martin Fridson, Global Credit Strategist, BNP Paribas Asset Management; coauthor, Financial Statement Analysis: A Practitioner's Guide

"Every once in a while someone takes the trouble to step back from the noise of investing to renew our perspective. In providing us with the tools to answer the question 'what is it really worth?' John Price has done just that. His advice is not only as timeless as the value-based approach he advocates, it's also refreshingly insightful."
--James O'Loughlin, CEO, JOL Consulting; author, The Real Warren Buffett: Managing Capital, Leading People

"Only someone with Dr. Price's mathematical background could separate story telling from fact when it comes to valuing a stock. His excellent book walks the reader through the different methods of calculating value and does the investing community a great service. This book should be on the desk of every investor."
--Charles Mizrahi, editor, Hidden Values Alert and The Inevitable Wealth Portfolio; author, Getting Started in Value Investing

"Author and financial mathematician John Price is appropriately named to write a book explaining the difference between price and value. So often investors confuse the two terms and unconsciously think that price is equal to value. Readers of this book will never make that mistake and only invest when an asset is trading at a price below its value."
--Robert P. Miles, author, The Warren Buffett CEO

"There may be more to being a savvy and rational investor than can be learned from this excellent book, but not much. John has made a large part of the wisdom of the world's greatest investors accessible to anyone."
--Steve Dalton, Director of Analytics, Tradition Group; Director, Eigensys Ltd; author, Financial Applications Using Excel Add-in Development in C/C++

"Packed with useful tips to improve your stock market results."
--Hewitt Heiserman, author, It's Earnings That Count

See all Editorial Reviews

Product Details

• Hardcover: 366 pages
• Publisher: Wiley; 1 edition (October 26, 2010)
• Language: English
• ISBN-10: 0470604387
• ISBN-13: 978-0470604380
• Product Dimensions: 9.1 x 6.2 x 1.2 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 5.0 out of 5 stars  See all reviews (9 customer reviews)
• Amazon Best Sellers Rank: #755,348 in Books (See Top 100 in Books)

More About the Author

John Price started his career as a research mathematician with positions in major universities around the world. After publishing two books and over 60 papers in peer-reviewed journals in mathematics, physics and finance, Dr. Price set as a research objective to understand the best investment methods of Benjamin Graham, Warren Buffett, John Burr Williams, Peter Lynch and others. He personally programmed, tested and compared over 30 different stock valuation methods in his search for the best of the best. This led to the development of investment software called Conscious Investor® which his company has sold around the world for the past nine years. It also provided the background and research for The Conscious Investor. He divides his time between the U.S. and Australia. For more details on the methods in this book, visit www.theconsciousinvestor.org.

Customer Reviews

Most Helpful Customer Reviews

1 of 1 people found the following review helpful:

5.0 out of 5 stars The Conscious Investor, October 8, 2011

By 

Colin Twiggs (Gold Coast Mail Centre, QLD, AU) - See all my reviews

This review is from: The Conscious Investor: Profiting from the Timeless Value Approach (Wiley Finance) (Hardcover)

The Conscious Investor is a handy reference tool for both the private investor and valuation professional, offering a thorough examination of the merits of a wide range of fundamental valuation techniques and fresh insights into their application. John Price has a PhD in mathematics and taught Mathematics and Finance at universities around the world, yet I found his book refreshingly practical. Highlight of the book is the chapter on Forecasting, with its analysis of forecasting risk and application of Benjamin Graham's margin of safety, popularized by Warren Buffet in recent years. I recommend this book to anyone interested in fundamental valuation.

Colin Twiggs,
goldstocksforex.com

7 of 10 people found the following review helpful:

5.0 out of 5 stars easyreader, November 5, 2010

By 

EasyReader (NY, USA) - See all my reviews

Amazon Verified Purchase

This review is from: The Conscious Investor: Profiting from the Timeless Value Approach (Wiley Finance) (Hardcover)

I have read many books on value investing. This is the best by far. The author clearly and simply explains every technique of value investing analysis, leading you step by step through the process while explaining the importance of each procedure. His illustrations are excellent. If you want to know how to find a good business to invest in at the right price this is the book for you. I am glad to have purchased the more durable hard cover copy since it will be used as a reference every time I make an investment.

9 of 13 people found the following review helpful:

5.0 out of 5 stars An investment book classic, December 3, 2010

By 

Dr. Geoffrey A. Wells (Adelaide, Australia) - See all my reviews
(REAL NAME)   

This review is from: The Conscious Investor: Profiting from the Timeless Value Approach (Wiley Finance) (Hardcover)

John Price's excellent book is destined to become a classic, sitting alongside Benjamin Graham's The Intelligent Investor and Phillip A. Fisher's Common Stocks and Uncommon Profits. Like those great works, The Conscious Investor stands apart from the ubiquitous recipe books of investing which offer fragmented advice with no discernible intellectual foundation and doubtful practical value. In contrast, this book is well-founded, rigorous, and innovative; and, one might add, comprehensive, accessible and useful. It is a significant contribution to the literature of investment principles and practice.

Price's presentation rests on two linked foundations. The first is one that is often lost in the maze of formulas: the principles of practical business. Here Price draws unambiguously and gratefully, on the writings and example of Warren Buffett. Few would argue with the choice: decades of outstanding returns speak for themselves. Buffet's core principles, expressed in the aphorisms for which he has become famous, underpin the analysis. This is investing for the long term in companies that have clear and defensible economic 'moats', run by managers who think like owners. Above-average investment returns, Price insists, with Buffett, rest on good businesses.

The second foundation relates to Price's observation that on its own intrinsic value, the so-called "true" value of a stock is problematic. He shows that different methods and mildly different business forecasts generate a large variation in valuations. As a remedy he introduces the "real value" of a stock as a combination of intrinsic value and price and then extends it to the expected return of an investment.

In the end investors want to know what sort of return they can make, not whether a stock is undervalued or overvalued by theoretical calculations. Even if we could calculate the "true" value, it may not translate into the sought-after price movement in a timely manner. There is a huge difference between a 50 percent undervalued stock that reaches its value in a year and one that takes a decade.

These simple concepts generate powerful and rigorous investment theory and practice. Price takes the reader on an expert tour of investment methods, from financial statement analysis (including off-balance-sheet items), ratio analysis, balance sheet valuation methods, free cash flow methods, discounted dividend methods, PEG ratios, residual income valuation, expected rates of return, and so on. His approach combines the insights of a specialist in financial mathematics with a rare expository gift. There is no compromise on delivering real understanding to the reader, technical and non-technical alike.

Uncompromising, too, are Price's challenges to long-standing investment orthodoxies. Discounted Cash Flow, for example, is politely but firmly dismantled, both for its mathematical assumptions and for the impenetrable derivation of the numbers it runs. Technical analysis meets the same clear, reasoned rejection. These are no small positions: they directly challenge the investment industry, for academicians and analysts alike. It will be fascinating to see the response.

In their place Price offers striking innovations. Since real value rests in large part on "clear forecasts about the business", Price develops a sophisticated statistical method of analysing business performance and projecting it into the future, along with a margin of safety that can meet rigorous stress testing. This is embedded in proprietary software which is clearly demonstrated. By taking a statistical approach to forecasting, at one stroke Price leaps over the endless pitfalls of modelling the future business environment, where tree diagrams become impossibly complicated within a few iterations. Price shows the power of statistics to simplify and to direct investment decision-making.

John Price's book is fascinating in many other ways. He touches on nearly all the main topics of the investment literature, expressing a firm view on them from the steady foundation of his analysis. He draws widely on the history and literature of business and finance, and on case-studies and anecdotes which illuminate the principles. His lucid, conversational style, and his obvious care for reader, make him a delightful as well as knowledgeable guide. Throughout the book, it is a privilege to be in his company.