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The heart of this book are chapters 12-14. Chapter 12 is titled "Give the Company a Physical" and shows you how to examine the balance sheet. The important ratios here are: 1. The current ratio - Current assets over Current liabilities - look for a figure greater than 2 2. The quick ratio - same thing minus the inventory 3. Shareholder equity (book value)- Total assets (less intangibles) minus total liabilities 4. Debt to equity ratio - Total debt over Shareholders equity - look for numbers < 1 - the lower the number the better
Chapter 13 is titled "Physical Exam Part II" and examines the income statement. 1. Look for growing revenues ( sales)- top line 2. Gross Profit - Sales minus COGS 3. Gross profit margin - Gross profit over Revenue - look for stability 4. EPS - net profit divided by shares outstanding 5. ROC - Earnings divided by beginning of the year's capital (stockholder's equity plus debt) 6. A low P/E relative to industry and market
Chapter 14 is titled "Send Your Stocks to the Mayo Clinic". Here he gives you 16 additional questions to ask about your company. You have to get the book to see the questions.
This book gave me the idea to create a spread sheet with info that I gathered from the book. The following is the one I did on Intel. INTEL Shares Outstanding 4,980 Price per share 24.26 Market Capitalization $120,815 Earnings per share 2.0 TOTAL ASSETS 83083 NET WORTH ( SHAREHOLDERS EQUITY) 51,194 Intangibles 15563 Total Liabilities 31889 Book Value per Share $7.15 Price to Book value per share ratio Selling for 3 times the amount company can be sold for Price to Earnings per share ratio Selling for 12.1 times earnings Current Assets 28677 Total Current Liabilities 11798 Net Current Assets (Graham's number) $16,879 Net Current Assets per share $3.39 Price to net current assets per share ratio Selling for 7.2 times net current assets
Total Assets 83083 Total Debts 31889 Assets to Debt ratio 2.6
In a perfect world markets would offer stocks at prices equaling their value, but they are not and do not. Value investors look for companies that are trading for less than their intrinsic worth. Stocks trading at low p/e ratios, low price-to-book values, or for less than their 'take out' price can be value candidates. Many of these stock prices represent temporary mis-pricings, and that is the point. Patience is a strategy that rewards the value investor as prices eventually adjust upwards to reflect their true worth.
Most investors looking for outsized gains focus on companies whose prospects are grand but also widely recognized. Growth investors and momentum investors are inclined to push prices well beyond a company's underlying value and ignore the importance of consistent, if not explosive, growth, and its appreciating assets. It is instructive that the author begins his review of a company by examining its balance sheet for what it is currently worth. By contrast growth investors will focus on a company's income statement for what it may become in the future.
Finding a "margin of safety" gives the value investor the confidence to weather the times when his style of investing is out of favor. That margin of safety is foremost in being able to buy solid companies on sale. Owning a diverse portfolio of easily understood businesses with predictable income and a pattern of insider buying or corporate stock buybacks re-enforces that margin of safety (I would also add-in companies that consistently increase their dividends). Identifying suitable value stocks means avoiding cheap stocks of companies that are over-leveraged, facing increased competition, dealing with unfunded pensions, obsolescence or accounting issues. These are the value traps that add nothing to your portfolio prospects.
Many of these ideas we have heard before. Browne's accomplishment is to present them in an accessible way. His long tenure as a career investor and money manager and his specific anecdotes got a long way in maintaining his credibility as an advocate of this investing style. Academic studies that support the value approach are noted in the final chapter and bibliography. This is a short, easily read, and informative introduction to the topic.
Book was listed as new. When it arrived (on time) it doesn't look new. The page edges are yellowed. The binding feels as if it's been opened and read. Possibly some marks on the dust jacket. Book is in good shape. Just doesn't feel new.
The book is good but there is not charts or even the formulas for calculations. It is just text. Like examples with the formulas you learn there, you won’t find. If you want, you can read and take notes to memorise everything
I enjoyed reading this book due to its succinctness, clarity and beginner friendly text. Browne does a good job explaining the ideas behind Value Investing, him being a student/follower of Warren Buffet's methods. It's a good intro book but don't expect it to just teach you everything you need to know on the topic. The book is relatively short and handheld so it's perfect for reading at a coffee break/on the bus, etc.
Just keep in mind that if you're looking for it to give you ideas on which securities to invest in and actual investment strategies/advice, you're not going to find it here. It's a basic book that explains the idea of Value Investing, and some of the basic methodologies behind it. It explains the history of it, the definition, and how to put it into practice. Any more details would have to require more advanced concepts which will not be covered.
this is an incredibly well written, concise book on value investing. it tells the reader exactly what look for - equities that are peiced cheaper than face value. why do i like this book? - it simple and clear - it doesn't expect the reader to be a financial analyst of accountant so the style is very easy. it uses great case studies, it's very short and not long winded and i will use this as a reference point going forward.
reading this book; you won't become a stock market guru overnight, however you will learn a hell of a lot and may even be swayed by value investing as a methodology going forward.