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Showing 1-10 of 46 reviews(5 star).Show all reviews
67 of 68 people found the following review helpful
on August 12, 2006
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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74 of 76 people found the following review helpful
on January 7, 2002
I am a professional investor (CFA charter holder and portfolio manager) and would suggest this book for anyone interested in the value style of investing. I would not recommend the book for a novice investor since some terminology is not explained. (Perhaps read this book after reading and understanding Benjamin Graham's The Intelligent Investor.) However, the book is an excellent read for someone with an understanding of investing. The book is divided into two main parts: The authors' views of different ways to value a company and profiles of successful value investors.
I think the authors' Earnings Power Value (EPV) approach to valuing a company is cutting edge. (Basically EPV is a rehash of Enterprise Value.) Most investors tend to value stocks based on P/E ratios - only looking at equity in a company. However, the proper way to value a company is to look at its whole capital structure - Debt, Equity & Cash. EPV is a much better tool than the P/E ratio for calculating whether a company is undervalued.
The second part of the book that profiles a half dozen or so successful value investors is interesting. It illustrates there are many different ways to execute a value oriented approach. The profiles do not give any hard cut rules that each investor follows, but it does give you a general idea. (I have been successful at applying some of the ideas in managing my own account.) The only flaw of the profiles is the lack of any type of track record. It would have been helpful to list the year-by-year returns for each investor compared to an index. (i.e. S&P 500 Index)
Overall, it's a great book and it deserves a spot behind Ben Graham's Security Analysis and Intelligent Investor.
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54 of 60 people found the following review helpful
on March 3, 2002
Ben Graham may have done for investing what Euclid did for geometry, but the Graham student must take a long and winding road to collect and organize Grahamian "theorems." Greenwald modernizes and thoughtfully organizes the value framework originally expounded by Graham, and shows how investors might take -and in the final section of the book, how several master investors DO take- Graham's notion of buying dollar bills for fifty cents and apply this central idea in creative ways to some of the less frequented areas of the market.
Greenwald show a terrific aptitude for remaining informal and conversational while maintaining brevity and orderliness. Neophytes are unlikely to encounter a clearer, more concise explanation of `discounting future cash flows', and most students of value investing will be well-served by Greenwald's order of equity valuation: (1) Asset Value, (2) Earnings Power, (3) Growth, all of which are clearly explained. Additionally, Greenwald discusses a useful addition to common metrics such as `net asset value' and `liquidation value' with the concept of `replacement cost'. Greenwald also acknowledges and thoughtfully attempts to quantify the value investor's less traditionally acknowledged principle of `franchise value', which he judiciously attributes to Warren Buffett as the latter's singular contribution to investment analysis.
The book's admirable brevity is also its primary shortcoming. Whereas Graham included senior debt and convertible debt vehicles both in Security Analysis and in his investment practices, this text is for all practical purposes only an examination of equities. If the authors of "Value Investing" ever opt to write about a value approach to bonds and other instruments, I'll bet they'd have a captive audience.
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18 of 18 people found the following review helpful
on July 18, 2001
"Value Investing" is a book most value investors will want to read. As I progressed through the early Chapters of the book I was starting to form the impression that this book was the best of its type I have read - and I have read more than a few!! In the end I backed off giving the book "superstar" status but would still without reservation place it in the 5 stars must read category - especially for those about to read their first book on "value investing".
Chapter 3 discussing the "Three Slices of Value" is the highlight of the book. The book is very readable - and unlike many similar texts has a good blend of the conceptual with quantitative examples. For those that have already read extensively in this area the second part of the book on famous value investors will be going over old ground.
From time to time the book raises concepts such as "Enterprise Value" and "Dividend Discount Model" with little or no explanation which could leave the novice reader frustrated. The book also leaves few clues about further resources that the reader might tap to dig even deeper into the topic.
Despite these negatives a great addition to my library which I have already gone back to for reference purposes.
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20 of 21 people found the following review helpful
on February 14, 2002
I have read numerous books on the topic of investing, including Security Analysis, The Intelligent Investor, Common Stocks and Uncommon Profits, One Up on Wall Street, Beat the Street, The Warren Buffett Way, and more. But this book is the most detailed and usefully instructive that I have found - at least since The Intelligent Investor. If you have an interest in accurately modeling the investment philosophies of the most successful investors, you will find this book to be invaluable.
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26 of 29 people found the following review helpful
on August 23, 2001
This is a required read for any practicing or prospective value investor. I have read most of the books on value investing and found this one to be both insightful as well as practical compared to the others. It offers a great mix of both philosophy and practice. A great starting point for the aspiring value investor. This book also introduces a lot of new content. The principles of sound investment will never and have never changed, but the application of those principles is constantly changing. This book brings us to the future by showing us the different ways in which value investing can be applied. There are various examples from Glenn Greenberg at Chieftain Capital Managment, who applies a concentrated value approach, to Walter Schloss who applies a diversified value approach. There are plenty of methods for the aspiring value investor to choose from. There is also a great profile on one of the future's great value investors-Paul Sonkin. Rarely do we hear about the next generation of value investors.
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12 of 12 people found the following review helpful
on September 19, 2006
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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10 of 10 people found the following review helpful
on August 5, 2001
A highly readable addition to the value-investing greats that manages to impart a great deal of the "details" while still remaining an easy-to-follow, literate book. Only drawback is that the investor profiles are not consistent -- they were evidently written by different authors and their quality is sporadic.
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5 of 5 people found the following review helpful
on March 2, 2009
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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11 of 13 people found the following review helpful
on July 5, 2001
Value Investing begins with a very readable and well thought out discussion of the value investing approach and then moves on to provide insight from some of the industry's most admired and accomplished practitioners. A very practical discussion that I consider one of the best books on the subject. I highly recommend it to anyone interested in learning how some great investors continue to generate consistent returns year after year, and also to professionals who will find a great discourse that they will want to have in their library.
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