Customer Reviews

Investment Valuation 2nd Edition University with Investment Set

5 star:		(20)
4 star:		(5)
3 star:		(0)
2 star:		(0)
1 star:		(1)

 

 

For investors subscribed to discounted cash flows valuation (DCF), there is no other books that offer the kind of in-depth anlaysis (both in step-by-step description and available scenarios using real companies) like this book does. Plus, Professor Damodaran maintains a free website where Excel-based valuation models and industry data are periodically updated. These features make the book invaluable. In short, if I am allowed to buy only one investment book, this is the one.

But since I can buy as many books as I want, it would be more important to tell what this book does not do. First, it's always important to get a second opinion. In this case, it would be something other than DCF. Currently, DCF and relative valuation (such as PE and PV) are the dominent valuation methods used in the U.S. And yes, they are both covered in-depth by this book, in addition to the Economic Value Addded method which is gaining momentum in recent years. But this book essentially dismisses the income statements in favor of cash flows statements for valuing securities, preferring DCF to relative valuation. This is certainly understandable in lights of recent manipulation of GAAP income by offenders like Enron, WorldCom and Tyco. But I believe it's important for investors to hear the voice for income statements valuation method. For that investors should get James English's Applied Equity Analysis - another must-have - as a second valuation reference book. Secondly, this book uses CAPM model for finding the discount rate. Again, it is true that CAPM is the most widely used model in the U.S., but I came to a conclusion, after reading close to a hundred critically acclaimed articles published in the last fifty years as part of my MBA requirements, that factor models provide better tracking of stock prices than CAPM does. Unfortunately, there is no good book available. For institutional investors, they can have models from BARRA and Wilshire, etc, but individual investors would have to construct their own, probably (like me) using the Fama-French three-factor model. Description of their model is available mostly from theirs and other published papers. Data are available from Kenneth French's own website at Dartmouth. Now since you read all the way through my review, here is your reward: go to Damodaran's website and download the manuscript of this book for free if you are really frugal.

I bought this book to replace an older valuation book also by Damodoran. I'm a professional analyst and am quite familiar with valuations, and this book provides a very thorough and comprehensive guide. I bought it just in time to serve as guidance through a very heavy and comprehensive research project.

Everything I needed for the project was in the book, however one thing surprised and disappointed me: the organization. I simply don't see much of a logical flow in the chapter structure, so I think it would be more difficult to someone who wasn't already familiar with the basic structure of the valuation process. Why is market efficiency jammed between unrelated chapters? Why is the discussion and examples of the pro-forma capitalization of R&D split between distant chapters? Throughout a single project, one would have to keep the book marked in several diffent places, not neccessarily in the order that one would have to deal with the questions if one were doing a valuation. The result is that this book is less easy to use as a practical guidebook than it could be, and will keep one busy in the index looking for where subjects are addressed.

This is nit-picking however. Professor Damodoran is to be congratulated for producing such a high quality and comprehensive text on valuation.

This is one of the very best books I have used while working on an MBA. It will occupy a prominent place on my business resources bookshelf. What makes it so special is that it covers the field of investment valuation very broadly, but each topic is handled concisely and with clarity. The author also supplies a healthy amount of context and supporting information as well as the technical matters around valuation.

Another virtue is that it is laid out very well. If you are interested in a specific topic, for example valuing a company with negative earnings or a private company or even contracts for natural resources, it is easy to look up the specific information and study what is relevant to the task at hand.

Plus the author has a wonderful website with supporting spreadsheets and valuable information on companies that can help a great deal in thinking through the topics raised in the book.

If I could only have two or three books of all those I have used during my work at the University of Michigan Business School, this would be one of the keepers.

This was a worthwhile purchase, but there are definitely some limitations with this book.

Positives - Damodaran has his very excellent web-site to complement this book. He does a very thorough job of breaking down the fundamental determinants of investments from both a DCF and relative valuation viewpoint. After reading this very long and detailed book, the reader should have a solid grasp of the theoretical underpinnings of valuation.

In terms of actual content, I think he does his best work in the chapters on relative valuation, fundamental growth projections, betas, risk, and the whole process of deriving cost of equity, cost of debt, and the WACC.

Negatives - There are quite a few, but it doesn't diminish from my overall recommendation to purchase this book. Among the most glaring issues:

- Calculation errors. This is my biggest gripe with the book. It is so mathematical and technically-oriented, and it is absolutely vital that the numbers are calculated properly. I can't tell you how many times Damodaran miscalculates his own examples. And even the answers to the problem sets that he posts on his web-site have some flagrant errors. This is simply UNACCEPTABLE because of the nature of this book.

- Expository style is meandering at times. I feel that a lot of the chapters could be shortened, and sometimes, it seems like the professor goes on a tangent for the sake of being overly thorough. Very rarely, there are a some key sentences that require re-reading; and after doing so, you think he could have written it a lot more simply. But maybe the topic itself is pretty complex, making his job more difficult. As an example, you have to get through four chapters to see how the Professor advocates translating the financial statements into free cash flows, and the chapters are spaced apart (a complaint some other reviewer here made as well).

- More theoretical than practical in some areas. For simplicity, many examples are primed on complex mathematical formulas and over-simplifying assumptions about growth rates, ROIC, and reinvestment rates. I think a practical valuation requires being more faithful to the actual data. In this area, I think the McKinsey does a better job and it is more detailed (and hence, more useful) about how to deal with specific items on the financial statements.

- Aggressive attempts to unify all valuation scenarios (Chapter 22 - 34) is more theoretical than practically useful. I agree that DCF is the foundation of a lot of valuation analyses, but the Real Estate chapter is a good example of going all the way with theory. Having done real estate valuations, I can't see any practitioner appreciating this chapter for anything more than its conceptual and theoretical arguments. From an actual real valuation standpoint, it's pretty limited and well... academic.

All in all, it's a great book, especially from a concepts and theoretical perspective. But that shouldn't be all surprising given that the professor is an academic himself.

This is a very good book for those who are familiar with valuation but want to delve deeper. The great thing about this book is that it is modular i.e. one can jump between chapters without loss of continuity.

It has a very practical treatment of real options which is to say that it helps you think about certain valuation situations in an Options framework rather than getting bogged down with the mathematics of the situation. It has a lot of worked examples and of particular interest are valuation examples relating to off-beat assets like a NYC Taxi Medallion! A decent treatment of valuation of real estate, professional practices (lawyers, doctors) etc. is also provided.

For those who like to think about conceptual issues, there is a very good treatment of estimation of betas, international cost of capital and other similar matters.

The only thing preventing me from giving this book 5 stars is a not-too-detailed treatment of the Market Approach and particularly adjustment of market multiples to reflect subject company parameters. Otherwise, a great book and definitely a must-have.

Investment Valuation by Aswath Damodaran, professor of finance at NYU's Stern School of Business, is essential reading for any financial analyst or serious individual investor. Damodaran develops detailed explanations of how to estimate the value of any asset but focuses primarily on the valuation of common stocks using both intrinsic and relative methods.

Intrinsic valuation views an asset's current value as the discounted sum of future flows of funds. Depending on the asset and the analyst's preferences, the future flow of funds could be dividends, earnings, cash flow (earnings plus non-cash expenses), or free cash flow (cash flow minus net capital expenditures). In developing the intrinsic valuation models, Damodaran carefully points out several of the problems that one can encounter: Estimating future growth rates, Selecting an appropriate discount rate, How to value an asset with a high current growth rate that is certain to moderate (since no asset can grow faster than the overall economy forever).

Relative valuation compares measures of value across several similar assets to determine which are overvalued and which are under valued. The multitude of possible comparisons include the: Price to Earnings (PE) ratio, PE to Growth (PEG) ratio, Price to Book Value (PBV) ratio, Price to Sales (PS) ratio. Here again, Damodaran identifies many of the problems and constraints an analyst might encounter, especially the need to calculate the ratios in a consistent manner. For example, PE and PEG could be computed using earnings and growth rates as reported for the last fiscal year, current fiscal year, next fiscal year, trailing twelve months, next twelve months, or twelve months centered on the current date. The choice of the timeframe is less important than its consistent application. However, I have found that I'm personally more comfortable using an average growth rate calculated over about six years (three in the past, three in the future) to smooth out annual variations.

The beauty of Investment Valuation is that it is mathematically rigorous but does not require any mathematical training beyond high school algebra. (OK, a little calculus would help in understanding growth rates and sums of infinite series, but it's really not essential.) The book is highly readable and free of typographical errors. It doesn't offer any half-baked formulas on how to get rich; it provides useful tools for making your own investment decisions. If you are looking for a rigorous book on investment valuation techniques, this is the top choice and a terrific bargain at Amazon's price.

I have both the 1st edition and 2nd editions. It is the most logical and complete valuation text around. Takes you through valuation processes as well as compares various methods step-by-step, logically and rationally. I also have the McKinsey edition and although it's good, it cannot compare with Damodaran's in clarity of language and logical reasoning.

I purchased this book as an adjunct to my masters degree work in finance and to assist personal investment valuations. Professor Damodaran's book covers the basics and then some to help value bonds, stocks, businesses, real estate and more. I'm carrying it in my car for use during the day, and refer to it when I read the Wall Street Journal in the morning. If you don't have time to work on a degree in finance, or even if you do, this book is invaluable.

Like other reviewers have said, this book should not be used as an undergraduate textbook. But as a reference book it is among the best for reviewing valuation principals. It covers many asset classes, including equities, bonds, options, futures, and real estate. This book also does a good job of breaking down principals used for valuing various firms (private, start-ups, takeover targets).

The real value for me, however, was its explanations of various DCF models and how they are used: adjusted present value, equity valuation, and firm valuation. The material does a good job of getting to the reason behind the numbers and not just how to use them (such as its explanations on how to determine a terminal value).

In summary, a great read for an undergrad or graduate finance student who wants to get familiar with valuation techniques, or even for an analyst who needs to brush up.

An excellent book. Damodaran's book thoroughly describes valuation techniques for all types of assets. The majority of the book, however, is on business valuation. He both explains the theory and gives comprehensive examples. Variations of the discounted cash flow model and real options (or contingent claim) approach are well described. His website Damodaran Online has useful information for performing company valuations.