Value Investing: From Graham to Buffett and Beyond (Wiley Finance) [Paperback]

Bruce C. N. Greenwald (Author), Judd Kahn (Author), Paul D. Sonkin (Author), Michael van Biema (Author)

Book Description

Publication Date: January 26, 2004 | Series: Wiley Finance

From the "guru to Wall Street's gurus" comes the fundamental techniques of value investing and their applications
Bruce Greenwald is one of the leading authorities on value investing. Some of the savviest people on Wall Street have taken his Columbia Business School executive education course on the subject. Now this dynamic and popular teacher, with some colleagues, reveals the fundamental principles of value investing, the one investment technique that has proven itself consistently over time. After covering general techniques of value investing, the book proceeds to illustrate their applications through profiles of Warren Buffett, Michael Price, Mario Gabellio, and other successful value investors. A number of case studies highlight the techniques in practice.
Bruce C. N. Greenwald (New York, NY) is the Robert Heilbrunn Professor of Finance and Asset Management at Columbia University. Judd Kahn, PhD (New York, NY), is a member of Morningside Value Investors. Paul D. Sonkin (New York, NY) is the investment manager of the Hummingbird Value Fund. Michael van Biema (New York, NY) is an Assistant Professor at the Graduate School of Business, Columbia University.

Editorial Reviews

Review

"No one can doubt there's an urgent need to think clearly about investing, since many investors in Silicon Valley companies have suffered a stock market decline comparable to the Crash of '29. The burned investor could find no better starting place than this superb book by four New York City value investors, all descended from the master of value investing, Benjamin Graham....They have written one of the most intelligent overviews of investing I've ever read, combining analytical rigor with intuitive description." (DAVID A. SYLVESTER, Published Sunday, Oct. 21, 2001, in the San Jose Mercury News)

"...Greenwald is an excellent guide on this subject..." (Sunday Times, 21 October, 2001) --This text refers to the Hardcover edition.

Review

Individual investors in the Internet Age are blessed with information. We also are cursed with too much of the stuff, from real-time quotes to streaming videos of fund managers. This info-clutter extends to books, and cutting through it can be difficult, even dispiriting, when you see how little thought goes into so many books. That's why I've spent part of the summer doing it for you. And the new title most deserving of your time is Value Investing: From Graham to Buffett and Beyond. Its authors, Columbia Business School faculty members Bruce C.N. Greenwald and Michael Van Biema and fund managers Paul D. Sonkin and Judd Kahn, aim to place their work next to Benjamin Graham's 1950 classic, The Intelligent Investor. My 1986 edition came with Warren Buffett's endorsement--"by far the best book on investing ever written." Value Investing is better. --Robert Barker, BusinessWeek, AUGUST 13, 2001

No one can doubt there's an urgent need to think clearly about investing, since many investors in Silicon Valley companies have suffered a stock market decline comparable to the Crash of '29. The burned investor could find no better starting place than this superb book by four New York City value investors, all descended from the master of value investing, Benjamin Graham.... They have written one of the most intelligent overviews of investing I've ever read, combining analytical rigor with intuitive description." --DAVID A. SYLVESTER, San Jose Mercury News, Oct. 21, 2001

Greenwald is a conventional economist (Ph.D. from MIT) who caught the value bug. He has updated and expanded Graham's ideas, and his summer seminars ($2,900 for two days) have become popular with everyone from well-known money managers to Columbia MBAs who couldn't get into Greenwald's class. But now there is a cheaper way to learn from Greenwald: He and three colleagues have just published "Value Investing: From Graham to Buffett and Beyond." Greenwald probably won't outsell Graham, but I think he ought to. --Paul Sturm, SmartMoney Magazine, June 19, 2001

"Whether you've been working with stocks for years or are a beginner looking for a book that goes beyond price/earnings ratios, you'll likely get something worthwhile out of the book. I certainly did." —Pat Dorsey, Morningstar, 11/7/2001

"I finally have a good solution for those wanting an updated manual on value investing. Value Investing [is] essential reading for anyone looking for a fresh perspective on analyzing companies and selecting investments. Those with a little background in finance will benefit from the book's clear prose and its profiles of eight successful value investors, and stock-market veterans will enjoy the detailed case studies in which Greenwald applies his ideas to specific companies.... It is one of the better books on investing to hit the shelves in a while. Greenwald's detailed analysis of Intel INTC is by itself worth the price of admission, and other examples are similarly illuminating. Whether you've been working with stocks for years or are a beginner looking for a book that goes beyond price/earnings ratios, you'll likely get something worthwhile out of the book." (Secrets of Successful Investing' by Pat Dorsey, Morningstar.com)

"Value Investing [is] essential reading for anyone looking for a fresh perspective on analyzing companies and selecting investments." —Pat Dorsey, Morningstar.com

"Sophisticated yet accessible to people outside the orbit of business schools, Greenwald's book is a lively defense of, and handbook for, value investing, complete with glimpses of how it's practiced by pros like Warren Buffett and Mario Gabelli." —TheStreet.com, November 15, 2001 --This text refers to the Hardcover edition.

See all Editorial Reviews

Product Details

• Paperback: 320 pages
• Publisher: Wiley; Reprint edition (January 26, 2004)
• Language: English
• ISBN-10: 0471463396
• ISBN-13: 978-0471463399
• Product Dimensions: 6 x 0.8 x 9 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 4.1 out of 5 stars  See all reviews (36 customer reviews)
• Amazon Best Sellers Rank: #37,715 in Books (See Top 100 in Books)

Most Helpful Customer Reviews

48 of 48 people found the following review helpful

5.0 out of 5 stars Must-read for serious investors of any stripe August 12, 2006

By Paige Turner

Format:Paperback|Amazon Verified Purchase

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.

46 of 50 people found the following review helpful

3.0 out of 5 stars Good content, but confusing August 19, 2005

By A Simple Guy

Format:Paperback|Amazon Verified Purchase

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.

11 of 11 people found the following review helpful

5.0 out of 5 stars the most comprehensive review on value September 19, 2006

By Antonios Wisa

Format: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.