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58 of 59 people found the following review helpful
5.0 out of 5 stars Must-read for serious investors of any stripe
A must-read for investors of any stripe, growth or value. This book, written by a couple of the most popular professors at Columbia Business School, explains the innovations in the field of value investing as practiced by some of the most successful investors in the field. (fair disclosure: I took Prof. Greenwald's courses in 2007) This book successfully bridges the gap...
Published on August 12, 2006 by Paige Turner

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61 of 65 people found the following review helpful
3.0 out of 5 stars Good content, but confusing
Good content and good approach. I'm a fan of value investing. The book teaches the reproduction cost of assets and the earning power value. It also hints on how to incorporate growth.

The problem is that information is all scattered around and the wording is not very reliable. The authors mix capital with ROIC with ROE. They also don't make it clear when they...
Published on August 19, 2005 by A Simple Guy


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58 of 59 people found the following review helpful
5.0 out of 5 stars Must-read for serious investors of any stripe, August 12, 2006
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This review is from: Value Investing: From Graham to Buffett and Beyond (Paperback)
A must-read for investors of any stripe, growth or value. This book, written by a couple of the most popular professors at Columbia Business School, explains the innovations in the field of value investing as practiced by some of the most successful investors in the field. (fair disclosure: I took Prof. Greenwald's courses in 2007) This book successfully bridges the gap between the traditional Graham & Dodd style of value investing to what works today. Although it's a paperback, it's written with the density of a textbook. The writing style is not light, and the actual meat of the book takes some time to wade through. If you don't have some experience in accounting or corporate finance, then Joel Greenblatt's The Little Book That Beats the Market is good to read first.

The substance of this book is a process for modern value investing: value investing is not investing in lousy companies just because they appear cheap. The authors also teach a structured way to value a company. Finally, the authors address how to value growth.

First, before reading this book I had the mistaken impression that value investing was all about investing in the ugliest, least interesting company you could find just because it had a low P/E ratio. I was completely wrong! (Maybe I have attended too many stock pitch sessions and heard too many poultry stocks and encyclopedia companies get pitched.) Modern value investing, according the authors: "When B. Graham went scouring financial statements looking for his net-nets, it did not concern him that he may have known little about the industry in which he found his targets. All he was concerned with were asset values and a margin of safety by that measure. A contemporary value investor had better be able to identify and understand the sources of a company's franchise and the nature of its competitive advantages. Otherwise he or she is just another punter, taking a flier rather than making an investment." What a breath of fresh air to read this passage.

Second, this book lays out a structured way to value a company by first looking at reproduction costs of assets, then earnings power, and finally the value of profitable growth. I, like the authors, find traditional DCF valuations to be plagued by false precision. The authors' more practical method starts by adjusting the balance GAAP balance sheet to calculate the cost of the assets for a potential business entrant. Next, the company is valued based on the earnings generates consistently, assuming no growth. A key insight is the value of the franchise: the difference between asset value and Earnings Power Value is the value created by a company that has significant competitive advantage. Last, the value of profitable growth is considered.

As a self-admitted recovering growth stock addict, I learned from this book that value investors are skeptical about growth for two reasons. One reason is that it is so hard to predict, but more important, many times growth is not worth much. Unless the return on capital (ROC) of the company is higher than the cost of capital, growth does not create value. (I am a slow learner; Greenblatt's example in The Little Book That Beats the Market of opening an additional gum store is even clearer to me.) The growth matrix and formulas in the book were a revelation to me. The surprising thing is how little multiple expansion a stock deserves based on growth. Unless a company truly has a franchise, expanding into other areas and "diversifying" the business often destroys value. And growth for growth's sake will not make a stock go up.

This book brings value investing into the modern stock market. Modern value investors still use traditional valuation principles in a structured way, but they also consider the value of growth and the attractiveness of the business. What a relief, I not restricted to buying typewriter and pay phone stocks! The authors quote Warren Buffett: It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
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61 of 65 people found the following review helpful
3.0 out of 5 stars Good content, but confusing, August 19, 2005
By 
A Simple Guy (California, USA) - See all my reviews
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This review is from: Value Investing: From Graham to Buffett and Beyond (Paperback)
Good content and good approach. I'm a fan of value investing. The book teaches the reproduction cost of assets and the earning power value. It also hints on how to incorporate growth.

The problem is that information is all scattered around and the wording is not very reliable. The authors mix capital with ROIC with ROE. They also don't make it clear when they mean cost of capital or WACC. Also, the definitions are not there and that creates confusion.

I found a few typos in tables. The values are carried from one table to another and sometimes are rounded sometimes are not. Some entries in the tables just don't mean anything because the values are never used nor referred to. That's a very bad practice for authors coming from academia. They should know better.

The book would improve to a 5-star rating had them fixed all typos, explained all terms, and put all calculations in tables in math formulas instead of just saying something along the lines of "we multiply the WACC by the ROIC and divide by the tax rate and we get a P/E of 10.5". (Example exagerated). Suggestion: List all the steps so we can follow. Add text to explain whats being done. Refer to rows and columns in the table so we know what values came from where. Also, clearly differentiate between tables with original facts (e.g., balance sheet from annual report) from tables that contain either speculation or derived numbers. Anything discounted or adjusted is speculation or derived.
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12 of 12 people found the following review helpful
5.0 out of 5 stars the most comprehensive review on value, September 19, 2006
This review is from: Value Investing: From Graham to Buffett and Beyond (Paperback)
In short, this book is grounded on economics and common sense. It summarizes "the intelligent investor", "security analysis", and the modern books on Buffett pretty well (there are other paths to heaven besides Buffett's). Its verbiage is beautifully chosen and a joy to read, especially for avid value investors. Best of all it is a scholarly work - if you're sick and tired of the commercial investing books that flood bookstores, buy this book.
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8 of 8 people found the following review helpful
4.0 out of 5 stars Must-read for value investors!, July 1, 2007
This review is from: Value Investing: From Graham to Buffett and Beyond (Paperback)
What I Liked About It
* Details several valuation methods that I haven't seen in other non-academic, mainstream investing books.
* Several real-world examples to apply valuation methods
* Great treatment of brands vs. franchises

What Needed Work
* Various investor profiles unnecessarily fill the 2nd half of the book.
* Attempts at quantifying "franchise" felt a bit forced.

Greenwald's book ranks at the very top of my investing bookshelf. I read this after having read Graham, Greenblatt, Klarman, Lynch, P. Fisher, Cramer (yes, that Cramer!), Dorsey, Buffett, and Browne among others. Amazingly, this book broached a number of topics not covered by those prominent authors. As such, this book is required reading for the discerning investor.

The most important concepts this book gave me were valuation methods based on net asset value (NAV) and earnings power value (EPV). Before this, I had trouble valuing companies that didn't generate steady cash flow or have commodity assets. Now I have more angles from which to examine a prospect and find undervalued companies besides running a DCF analysis. We've heard about past opportunities where you could have bought a company like McDonalds for the price of its real estate and gotten the business for free. Greenwald shows you how to find these opportunities using his asset valuation methods. He also gives you the tools to fairly value "tech" companies (or any enterprise with heavy intangible capital). Less convincing is his discussion of earnings power value but nonetheless, it's still helpful to be able to examine a company's earnings ability.

Greenwald also spends time discussing problems with discount cash flow analysis (DCF) as well as franchises. While his thoughts on these subjects were thought-provoking, I don't completely agree with his conclusions.

On DCF, Greenwald says that trying to project future growth rates 5-10 years forward is folly and will distort your DCF analysis. While he is right that future growth projections are problematic, that doesn't mean DCF isn't helpful for individual investors. Greenwald concedes that his preferred methodologies require, in some instances, in-depth knowledge of the business and industry of the company being examined. The non-professional (me!) may not have this expertise and any estimates of asset worth or capital costs would be just as faulty as analyst growth estimates. In fact, an adjusted future growth rate derived from a number of industry-knowledgeable analysts may be more generally accurate (if imprecise).

The main knock against the book is the whole second half consisting of eight investor profiles. There's nothing wrong with them per se except that they are in the book at all. If I had wanted a book on famous value investors, I would have picked up something by Kirk Kazanjian. The chapter on Warren Buffett is almost exclusively quotations taken from freely available public reports and Seth Klarman has written his own book on investing.

I've written a more-indepth review at my enlightened-american website but in summary, my advice is to soak in the 1st half of the book and skip the 2nd half entirely. Dig into an annual report instead and start applying what Greenwald's shown you.
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5 of 5 people found the following review helpful
5.0 out of 5 stars The best book on investing I have ever read, March 2, 2009
This review is from: Value Investing: From Graham to Buffett and Beyond (Paperback)
I had been waiting for an outstanding book like this one for years. I finally found it! The book is divided into two main parts. The first part describes value investing and lays out the foundations on how to go about valuing investments with an emphasis on companies' stocks. The second part describes the approaches of some value investors with the greatest number of pages dedicated to Warren Buffett.

Greenwald et al lay out the principles of value investing in a manner that is basic enough that any intermediate investor can easily follow and yet, unlike many other books, not so basic that is becomes meaningless or insults the readers. There is some basic algebra but nothing too complicated. As Warren Buffett says you do not need to understand complicated math to be a great investor.

The authors also do a great job in explaining why pursuing growth is not a contradiction for value investors. Pursuit of growth strategy may seem at odds with traditional value investing as taught by Ben Graham, but the authors explain the evolution of the discipline clearly. Many criticize value investors as not being really value-oriented when they pursue growth. Value investing can describe different strategies. Two cooks may specialize in Chinese food but can come up with completely different dishes. This does not mean that one of them is not really cooking Chinese dishes. Similarly there is nothing contradictory about a value investor purchasing a growth stock. I thought the authors did a great job explaining this concept to readers. The second part of this book describes nicely how different cooks specializing in Chinese dishes can cook in significantly different manners.

This is an outstanding book and the authors have done their readers a huge service. Ben Graham's Security Analysis and Intelligent Investor are the bibles for many value investors, but this contemporary book is both more enjoyable and readable. I highly recommend it.
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21 of 27 people found the following review helpful
2.0 out of 5 stars Star Trek, October 27, 2007
By 
Roger John Maudsley (Rio de Janeiro, Brazil) - See all my reviews
(REAL NAME)   
This review is from: Value Investing: From Graham to Buffett and Beyond (Paperback)
The authors announce their intention to bravely go "beyond" Graham and Buffet. I found their effort extraordinarily interesting. Not because it brings new ideas from the frontiers of Value Investing; but rather because it forced me to revalidate old ones.

Written mainly by academics, the book attempts - with undeniable clarity - to provide a simple framework for valuation of a firm using Value Investment principles. First, three sources of value are defined: Asset Value; Earnings Power Value; and Value of Growth. Second, some conceptual tricks are employed to link them in a theoretical structure capable of supporting hours of animated tutorial discussion.

The importance of Asset Value in the scheme derives from the idea that if a firm that has no defenses against competitors it is worth no more, or less, than the replacement value of the assets necessary to set up a similar business.

To illustrate, imagine a defenseless firm that is worth 2x on the stockmarket while its productive assets are worth only 1x. Attracted by the absence of barriers to entry and by the high market value achievable with a substantially lower investment, enterprising businessmen set up similar businesses.

As the new capacity comes on stream the market is inundated with products of the same type and prices and profits consequently fall. The process only ends when the market value of all the firms has fallen to the value of their assets, thus eliminating the differential that attracted new market entrants in the first place.

For this to happen we must have an idealized market of perfect competition: lots of buyers and sellers, undifferentiated products, no barriers to entry, perfect information, etc. In practice, however, a dozen firms with similar assets will generate a dozen different levels of profit. And in the end, as the book admits, it is profit expectations, not assets, that determine the value of an on-going business.

I wondered if Graham and his associates ever subscribed to this concept. In my 5th edition of "Security Analysis" I found the ambiguous comment: "ECONOMISTS believe that high returns on capital attract competition which ultimately forces down the rate of profit" (my capitalization). This same edition affirms that it is "The earning power of the assets in use (that) determines their investment value" (rather than the replacement value of these assets). I could find no evidence that the notion formed a key part of the valuation process described in the value-investing classic.

Moving on, We are told that the major difference between Earnings Power Value and Value of Growth, when used to estimate intrinsic value, is the confidence we can place on the result. It is notable, however, that both definitions of value exist in the same continuum. To calculate Earnings Power Value we can simply assume growth to be zero in the traditional Discounted Cashflow formula for estimating intrinsic value.

Beyond a certain point it is reasonable to suppose that the degree of confidence we can put on an intrinsic value calculation falls with the size of profit growth projected. How much faith would we have in a value based on a growth projection of 30% per annum, for example? But why should zero growth produce an intrinsic value closer to the truth than 5% per annum? Is one really inherently safer than the other? What about the risk of deceleration in the case of an assumption of zero growth? Conservatism does not mean ignoring reality.

Once again it all seems part of a jolly academic game. The questionable differentiation between Earnings Power Value and Value of Growth allows the authors to find a role for another element: the franchise - the defenses the firm possesses against competition. They thus arrive at a tidy little conceptual framework. If a firm has no franchise then its intrinsic value is represented by its Asset Value. If the franchise is weak then we base our estimate on its Earnings Power Value. And if it has a rock-solid franchise we might just be able to introduce the Value of Growth. Does all this have any useful meaning in the real world?

Aside from these conceptual questions I found the book exceptionally practical in describing the details of how to value the assets and evaluate the franchise of a firm. On the other hand I found the profiles of eight value investors rather tedious.
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8 of 10 people found the following review helpful
3.0 out of 5 stars Decent, but there are many better books out there., June 19, 2010
By 
Kay (PENSACOLA, FLORIDA, United States) - See all my reviews
(REAL NAME)   
This review is from: Value Investing: From Graham to Buffett and Beyond (Paperback)
Greenwald is a horrendously dry, boring, and confusing author to read. This book isn't meant to be entertainment, but educational; but his writing style practically ensures you will have a horrible time reading this.

The first half of the book presents the authors theories of securities analysis. He gives several "case studies", but they offer little help in real-world application once you have put the book down. The ideas given in here are coated in Graham-esque language and philosophy, but at the core it is the author's flimsy and not entirely well-thought out theories which are rooted in the efficient market hypothesis. Some of the things he says are correct, but the whole idea leaves you with several, "yea, but..." sort of questions.

The second half of the book presents mini-biographies of a few well-known "value investors". These have some merit, but you can find better ones elsewhere.
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7 of 9 people found the following review helpful
1.0 out of 5 stars This book has some useful information, but I found some of the valuation techniques to be flawed, December 20, 2012
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This review is from: Value Investing: From Graham to Buffett and Beyond (Paperback)
I was initially excited when I first read this book, but my enthusiasm dimmed when I tried to use it in real life. My main problem is that if you sit down and think about the author's Earnings Power Value formula for valuing stocks there are some problems with it. It says that the value of a stock is equal to its adjusted earnings divided by its cost of capital. But there are two different methods for calculating the cost of capital. I started out using the Dividend Growth Model. Many of the stocks I looked at had a cost of capital of around 2%. That results in a valuation of the company at 50 times earnings. No sensible investor would pay more than 20 times earnings. To take it to an absurd extreme, by that formula if the company did not pay a dividend and had no debt, the cost of capital would be 0%. That would result in the stock having an infinite value. I next went to the Capital Asset Pricing Model. That resulted in some more reasonable valuations. The question I have is that if there are 2 different methods of calculating cost of capital and they can result in widely varying percentages, how reliable is it as a method for accurately valuing stocks? I think I'll stick with Security Analysis and The Intelligent Investor.
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2 of 2 people found the following review helpful
5.0 out of 5 stars Another Book Review from the Aleph Blog, June 13, 2013
By 
David Merkel "Aleph Blog" (Ellicott City, MD United States) - See all my reviews
(REAL NAME)   
This review is from: Value Investing: From Graham to Buffett and Beyond (Paperback)
Several months ago, I was walking in my bedroom, and in a stack of books that we frequently give as gifts, I saw the book Value Investing: From Graham to Buffett and Beyond. I said to myself, where did this come from? I looked at it, and realized that hadn't read it. I looked at the copyright date, and realized that 2001 is a relatively old book.

So I read the first chapter, decided it was good stuff, and added it to the reading pile. As some might know, I am a value investor, and recently I wrote an article called "Value Investing Flavors." In it, I took a broad view of value investing, because there are many common principles to value investing employed by all, but many variations on implementation. [Note to those reading at Amazon; they don't me post links, but if you Google "Aleph From Graham to Buffett and Beyond" you will find it.]

The book begins with unified principles of value investing: margin of safety, buy ing an asset cheap, etc., but moves on to different ways to implement value investing, depending on the types of companiesthe investor wants to analyze.

There are three ways to do the analysis for value investing:

* Re-estimate the fair value of the assets and liabilities on the balance sheet. This applies best to companies where converting resources to a better use would be compelling.
* Estimate the normalized earnings power of a slow growing company.
* For a company with a moat, a sustainable competitive advantage, conservatively estimate the path of growing earnings.

I listed the three of them in the order of increasing aggressiveness of analysis, and the amount of work that would need to be done to be assured that there is an opportunity.

After this, the book writes about eight notable value investors, who come from the various camps inside value investing, and puts more flesh on the bones as to the implementation of each method. I immediately recognized the names of 6 of the 8 value investors.

But what I found most useful were the insights of the investors that would buy small companies. You can buy ugly situations that are misunderstood, and wait for management to turn the ship around.

This book was a good balance between theory and practice. I enjoyed this book. I think most amateurs wanting to learn about value investing would benefit from it.

Quibbles

None.

Who would benefit from this book: Amateur value investors will benefit from this book; if the reader does not want to put the effort into learning value investing, this book will be of no use to him.
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2 of 2 people found the following review helpful
5.0 out of 5 stars A fresh approach to value investing, January 20, 2011
By 
G. Sakkas (Montreal, Quebec Canada) - See all my reviews
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This review is from: Value Investing: From Graham to Buffett and Beyond (Paperback)
Greenwald, Kahn et al. did a good job putting this book together. His approach works and is easy to use. I would also suggest purchasing his other book Competition Demystified: A Radically Simplified Approach to Business Strategy, as it provides updates to some parts of Value Investing.

Once you're done reading those two books my suggestion would be to read Applied Value Investing: The Practical Application of Benjamin Graham and Warren Buffett's Valuation Principles to Acquisitions, Catastrophe Pricing and Business Execution. Calandro uses the valuation techniques learned in Value Investing on specific company cases and his book should be used as a workbook to Value Investing.

enjoy!
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Value Investing: From Graham to Buffett and Beyond
Value Investing: From Graham to Buffett and Beyond by Michael van Biema (Paperback - January 26, 2004)
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