- Paperback: 320 pages
- Publisher: Wiley; 1 edition (January 26, 2004)
- Language: English
- ISBN-10: 9780471463399
- ISBN-13: 978-0471463399
- ASIN: 0471463396
- Product Dimensions: 5.9 x 0.9 x 8.8 inches
- Shipping Weight: 15.2 ounces (View shipping rates and policies)
- Average Customer Review: 111 customer reviews
- Amazon Best Sellers Rank: #41,691 in Books (See Top 100 in Books)
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Value Investing: From Graham to Buffett and Beyond Paperback – January 26, 2004
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From the Back Cover
"This book deserves a place on every serious investorsshelf."
"A must-read for all disciples of value investing. In 1934,Graham and Dodd created fundamental security analysis. Greenwaldreinforces the worth of this approach, incorporates new advances,and takes their work into the twenty-first century."
Mario J. Gabelli, Chairman, Gabelli Asset Management,Inc.
"The new title most deserving of your time is Value Investing .. . . Its authors aim to place their work next to BenjaminGrahams 1950 classic, The Intelligent Investor. My 1986edition came with Warren Buffetts endorsementbyfar the best book on investing ever written. Value Investingis better."
Robert Barker, BusinessWeek
"Greenwald is an economist (PhD from MIT) who caught the valuebug. He has updated and expanded Grahams ideas, and hissummer seminars ($2,900 for two days) have become popular witheveryone from well-known money managers to Columbia MBAs whocouldnt get into Greenwalds class. But now there is acheaper way . . . Greenwald probably wont outsell Graham, butI think he ought to."
Paul Sturm, SmartMoney magazine
"Greenwalds book is a lively defense of, and handbook for,value investing, complete with glimpses of how its practicedby pros like Warren Buffett and Mario Gabelli."
George Mannes, TheStreet.com
"Essential reading for anyone looking for a fresh perspective onanalyzing companies and selecting investments."
Pat Dorsey, Morningstar.com
About the Author
BRUCE C. N. GREENWALD is the Robert Heilbrunn Professor ofFinance and Asset Management at Columbia University Graduate Schoolof Business.
JUDD KAHN has taught history, served in city government,and worked as a securities analyst, a CFO, and a managementconsultant. He has a PhD in history from the University ofCalifornia, Berkeley.
PAUL D. SONKIN is the investment manager of theHummingbird Value Fund. He has worked at the SEC, Goldman Sachs,Royce Funds, and First Manhattan Company. He holds an MBA fromColumbia.
MICHAEL van BIEMA is a member of the finance faculty ofColumbia Business School. Prior to joining the faculty of Columbia,he was a principal at the RONIN Corporation, a managementconsulting firm, and the cofounder of several technology companies.He has a PhD from Columbia in computer science.
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1. The possession of a mandate that limits what you can do, specifically- what sort of outfits you can pursue as investments, how big these outfits can be, and how much money you can throw at each outfit
2. The possession of a large, and often growing, pile of funds with which to invest
3. The possession of a few good ideas, but not nearly enough for the amount of funds that you have available to invest
4. The inability to devote time, resources and brainpower to research every nook and cranny of the market in the search for suitable ideas/investments
5. The longing to look like a genius or a guru; however, this natural and important desire is checked by the greater desire to avoid looking stupid when all is said and done and performance reviews are due
The typical treatment regimen for the Institutional Mentality is as follows:
1. Actively mimic the competition in all things. So, this means that if everyone is into AAPL, you're into it, too. And if everyone is using hedging and borrowing stock to dress up year-end portfolio results, you are, too. (what Dreman calls the herd mentality and Buffett refers to as the impetus to adopt lemming-like behavior)
2. Diversify- even amongst those things you know little or nothing about. This will ensure mediocrity.
3. Spread funds around so as to limit potentially embarrassing losses (and on the flip-side, limit potentially lucrative, out-sized gains). This will ensure that the stated objective of investing is not achieved. (Croupiers fear not, for you will be obscenely compensated for failing your 'clients' and your fiduciary responsibility. Small investors should be very fearful, as this is the retirement money and the kids' college fund we are handling- see the last sentence on Page 158.)
Value Investing goes on to reveal the theory and practice behind one approach to investing, and the many subtle variations that a few of its more famous practitioners bring to it. It accurately details how the approach has deviated from that of The Father of Value Investing, Benjamin Graham, who sought his so-called `net-net stocks' (stocks which are valued solely based on their balance sheets- specifically, based on their current assets less all their liabilities, current and non-current), and morphed into the various flavors as practiced by many devotees of the approach circa Y2K. Along the way, it also spends a lot of time successfully slaying the sacred cows of modern portfolio theory, discounted cash flow analysis (and the ever-present growth projections that come with it) and the elusive hunt for growth. Additionally, it also makes a good, solid case for fundamental analysis, which, oddly enough, is up-ended by the profiles of a few of the value investors profiled in-depth who basically eschew it and the one lone value investor who swears by discounted cash flow analysis- the very technique for which the authors have a dim view. In passing, the authors waited until nearly the end of the book to present their take (and an adequate and succinct one at that) on the differences between contrarian investing and value investing, something which I personally feel should have been addressed in detail at the beginning of the book.
The approaches presented function best when evaluating the worth of companies that make use of tangible, physical assets to produce wealth (though they may need to make significant investments in knowledge capital beforehand via research and development and then translate that knowledge through physical capital into a tangible product). In general, I found the book lacking in specifics on how to evaluate those highly profitable outfits whose principal assets are intangibles in the form of computer code, accumulated data and other forms of knowledge capital that do not as a rule require significant investments in physical plant (and the use of associated debt capital) in order to produce wealth.
In addition to covering the institutional imperative and outlining the basic underpinnings of value investing, the book also provides two thoroughly worked examples using the fundamental principles of value investing as well as profiles of a few of the leading lights- the luminaries- of value investing. These luminaries all put their own idiosyncratic spin on value investing. Some emphasize comparable sales (of assets or whole companies), while others emphasize growth within the context of an identifiable franchise. Still others focus solely on the balance sheet, while others focus on earnings power value. A couple focus squarely on negative sentiment combined with an eye on either assets or earnings, while others look for catalysts or motivated sellers (here for reasons that have little or nothing to do with the present or future prospects of the outfit).
Overall, I found the book to be a very worthwhile read, considering 1) the length of time it took me to read it (almost three months), 2) how many times I had to stop and re-read certain sections, 3) how many passages I underlined within the book, 4) the volume of notes I took when reading the book and 5) the complete, 180-degree reversal I had in my thinking and approach to investing after reading this book. I would have to say that I learned a few new tricks (and also uncovered a few new traps) while reading this book, and while I am always partial to Buffett's take on value investing (his terse words on the nature of earnings alone are priceless, and confirms everything I have been saying to folks about the market and certain stocks of late), even Buffett had to show the proper respect to Schloss & Schloss, two balance-sheet-centric value investors whom Buffett admired for achieving extraordinary results with little in the way of resources beyond a list of willing clients of modest means and a proven method, learned underneath the feet of The Master's Master, Ben Graham. Next up on my list is to read everything I can on Schloss & Schloss.
Readers with an interest in the topic of value investing in practice should consult Kirk Kazanjian's Value Investing with the Masters, and Ronald W. Chan's The Value Investors: Lessons from the World's Top Fund Managers.
Using the approach popularized by Ben Graham this book describes the theoretical approach and then walks through two detailed examples of how to apply the notion of enterprise value to WD-40 and Intel. With detailed analysis of financials from both companies the book demonstrates how to understand financial structures that help predict and quantify a company's competitive advantage.
I've read a lot of value investing books that talk about competitive advantage, but this is the first book I've found that attempts to demonstrate directly from the balance sheet how to calculate the economics of that competitive advantage.
I still want to apply everything I've read here to a dozen companies and see how well the analysis works in the real world, but the theoretical framework appears to offer a very easy way to determine who really has a franchise and then place a fair value on that advantage and establish a fair price for the stock.