- Hardcover: 336 pages
- Publisher: McGraw-Hill Education; 1 edition (January 7, 2014)
- Language: English
- ISBN-10: 0071781668
- ISBN-13: 978-0071781664
- Product Dimensions: 6.4 x 1.2 x 9.3 inches
- Shipping Weight: 1.2 pounds (View shipping rates and policies)
- Average Customer Review: 19 customer reviews
- Amazon Best Sellers Rank: #410,244 in Books (See Top 100 in Books)
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Strategic Value Investing: Practical Techniques of Leading Value Investors 1st Edition
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About the Author
STEPHEN M. HORAN is managing director and co-lead of education activities at CFA Institute. Prior to joining CFA Institute, he was a principal of Alesco Advisors, LLC, and a professor of finance at St. Bonaventure University.
ROBERT R. JOHNSON is professor of finance in the Heider College of Business at Creighton University and also serves as a director of RS Investment Management. Prior to joining the faculty at Creighton, he was deputy CEO of CFA Institute, responsible for all aspects of the CFA program.
THOMAS R. ROBINSON is managing director of the Americas at CFA Institute. He joined CFA Institute as head of educational content in 2007 from the University of Miami, where he was an associate professor of accounting and director of the Master of Professional Accounting Program.
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Top customer reviews
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For example: BGFV showed as value stock in Briefing.com's service sometime back. Actually it was a value trap based on SSS, value and working capital issues. AVD was touted as a growth stock recently by AAII stock-superstars service. It turned out to be a a big trap. A simple working capital analysis showed this and I bailed (hit the exit with 4% loss). Now COH is showing up as great value stock in Joel Greenblatt's magic screen. As I write this (June 5, 2014), it is another valuetrap, because the intrinsic value is close to $31 (according my analysis). More recently DAL (Delta Airlines) is touted as value stock (for some maybe growth stock, altough there is nothing like a value or growth stock according to Warren Buffett), but it is another valuetrap IMHO. Intrinsic value is $37 ($30 from forward earnings, $4 from 5 yrs of earnings and $3 from continuing value). Here I assume generous 10% earnings growth beyond 2 yrs and 10% cost of capital.
All these has taught me a big-lesson. Never trust the results of some stock screen blindly (or somebody who gives this screen, or sells a screen to you). Even if the stock idea comes from some famous person, flavor of the year or decade or academic who has done rigorous back testing etc.
IMHO author could have shown their backtest results (using COMPUSTAT data analysis) to make a case. Irrespective of this, do your "intrinsic" value analysis. Shun DDM model (old technology), use RIM or AEG or FCFE model. In fact the very same authors have another article in AAII that explains which valuation method to use under various circumstances. It is a good one.
If one does DDM method to value BA (Boeing) that authors do in AAII article its value is $71. A value investor of course would never buy at $71 or more. I think intrinsic value based on AEG or RIM (both are same according to accounting experts and can be shown using a equation), BA value is close to $130. Let me also make it clear that DDM uses a lot of assumptions about future, and FCFE uses even more assumptions on future. In fact FCFE numbers start with with sales grwoth and operating margin, tax rate etc. and this is no different in estimating ROE or EPS numbers for RIM and AEG models. So somehow this notion that RIM and AEG models are difficult is not correct (IMHO).
Take another example such as PCLN Priceline -one can never value PCLN using DDM. RIM works well and also AEG models work superbly, same with GOOG. Would you buy google (GOOD) in 2004 thinking that PE is so high? NO. Value investor would not touch unless he can value the intrinsic worth. Starbucks in late 1990s, Home Depot, GE, Apple (AAPL) in mid 2000's had negative Free Cash Flow and if one used FCFE model, they would never buy such companies. A growing company uses lot of working capital and cash flow is negative. And if you "value" these companies using FCFE model, terminal value gives your about 70 to 80% of value (utterly unreliable long term forecast). Pick the right tool for the right job (right valuation model for the right company) is the message.
Overall I liked the book (cannot complain for $20). An excellent addition to your investing library.
While the book's detailed treatment of the various valuation models may seem daunting, it is well-presented; a companion website with spreadsheets based on the chapters would have been of great value (though they are relatively easy to make and some are available readily online). This (and the above-cited books) book clearly drives home the point of needing patience, dedication and time for homework for being a successful value investor. As such some readers may be tempted to subscribe to recommendation sites/newsletters with a decidedly "value investing" bent or limiting to actively managed value funds or stick with an indexing approach. Some of those (Manual of Ideas, for example) cost close to $1000/year, while others like Morningstar's are more accessible. Whether one chooses to build their portfolio from scratch or use shortlisted ideas from sites/newsletters, it is critical to understand the approach, the assumptions inherent in valuation models, and associated risks. To that end, this book performs admirably. One wishes the authors had provided online versions of the screens/valuation models to allow for more experimentation. Nevertheless, a well-written, detailed treatment of value investing.
Most recent customer reviews
4 stars because the editing is poor.Read more