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Admittedly there are areas of skills that can only be applied to more institutional players. But that’s the author’s background. I much enjoyed his straight-forward, no non-sense style of writing and transparent sharing of insights.
There are many good investment books, which explain the PRINCIPLES of investing – however, there are very few good books that offer you a HOW to process of investing. Steve’s Clapham book The Smart Money Method: How to pick stocks like a hedge fund pro – is precisely that book.
The book is structure into several key chapters: • What makes a good investment? • Finding ideas • Testing the hypothesis • Understanding the industry • Quality • Management • Financials • Valuation …and more
The chapter on quality, outlines, quite a detailed checklist of questions that include: • How does the industry work; who are the main players, the customers, and the suppliers? • The fragmentation of each group? • What are the demand drivers? Are they strengthening or deteriorating? • What are the competitive dynamics of the industry? • How is the industry structured and what is the level of consolidation? • Does the sector have any pricing power and who controls industry pricing? ..etc
The chapters on company financials provide an in-depth overview of how to read a Balance Sheet statement, P&L and cashflow statement. The section on ‘accounting manipulations’ is also particularly valuable for investors. I have found that often cheap companies are cheap for a reason, and this will allow you to understand why – as well as help you find that company which is truly cheap –the diamond in the rough.
The book provides a detailed checklist in this section too, and outlines how to identify possible accounting manipulation’s/red flags to watch out for, such as: • Revenue recognition – and changes in accounting policies • Cashflow manipulation – factoring of receivables and more • Tricks with expenses and capitalisation • Increasing working capital • Increase debt • Decreasing deprecation rates …and more
Charlie Munger says: 'you don’t make money when you buy a stock, you don’t make money when you sell a stock, you make money by holding a stock’.
This is simple enough advice in theory, but in practice, the vicissitudes of the market make this a real challenge to implement.
In my opinion, the only way to combat this is to really understand what you own – and the only way to really understand what you own is to construct a detailed understanding of the companies operations, financials, and future prospects.
To this end, I would highly recommend this book to any investor, who is searching for a proven process to improve their investment approach.
I was pleasantly surprised by my impulse decision to purchase " the Smart Money Method " . I'm an experienced investor , having read over a thousand investing books over the past 2 decades of my stock market adventures .
I expected it to be much like the vast majority of investing books out there which fall mainly into 2 groups - the first ( basic ones which gloss over the details while giving inspirational , high level advice ) and the second ( complex , technical stuff uninteresting for the average reader /investor ) .
Smart Money is a book that's valuable for both the beginning and experienced investor - a very rare feat in itself . The author , a 30+ year veteran of the markets , takes a step by step approach to investing - as you would in real life - starting with approaches to look for and find the best stocks , analyzing them for quality , building and maintaining your portfolio etc . Definitely useful as a primer for the novice investor . What was greatly surprising to me was the golden nuggets of wisdom in pretty much every page, highly valuable to the experienced investor - no doubt a product of the author's deep practical experience in the space .
I would whole-heartedly recommend this book to investors of all stripes. In fact I aim to buy a few copies to give to my friends who've been asking me for a guide to get them started in the stock markets .
The author writes in a breezy , very easy to read and enjoyable style, without the unnecessary technical jargon . He does not go into deep academic theory , but really focuses on the real life practical applications. Innumerable examples , no doubt influenced by the author's personal experiences add weight to his discussions. It's quite evident that the author is not only a proficient practitioner but also a master educator on the markets.
I would rank it right alongside the Peter Lynch classic " One Up on Wall Street " . This one's destined to be an investment classic ! A must read for investors at all levels !
This is not a bad investment book but my main issue is - who is it for? It is clearly inappropriate for private investors for two reasons. Firstly, the author does not even mention asset allocation let alone discuss how to go about it. Yet this is the most important investment decision any retail investor can make. The book is solely about equity investing. Secondly, the author frequently mentions information sources (Bloomberg) or meetings (with management) that no private investor has access to. The methodology discussed and outlined is that of a professional investor. On the other hand, I don't think this book is much use to a professional investor. The latter should have finance/accounting/professional (CFA) qualifications which will have covered much of the material here. (Also where the author touches on metholodology there is simply not enough detail - these things are usually better covered on a course (I know the author offers them)). I am a professional PM so I should know. Please note I am not knocking the author but I have read literally hundreds of books on investing and finance/accounting and much of the material here is covered elsewhere. The best chapter is probably the one on Management (really interesting nuanced discussion) and the weakest one was on Quality. The discussion on valuation methods also interested me - the backtesting I have done showed that FCF Yield and EV/Sales were the two best of the accounting measures of value (so the author is right to highlight EV/Sales). P/E actually is quite poor which did not surprise me (surprised that the author rates it). Things I disagree with - brokers are normally useless as a source of ideas but a good reflection of the where the herd is (10% of General Sales are actually interesting because they formulate their own views while the rest are complete sheep and are just selling their house view). One other curiousity - I've come across this before - but the author has as a highly detailed approach to investing - very much an analysts approach, most portfolio manager cannot afford to spend as long on each stock as he does and yet at one point he lists his time horizon - I cannot find the page but I think it was something like 24-36 months - for me this is short term investing. My view is that at that time horizon things are still in the beauty parade form of investing not the weighing form which such detailed analysis would naturally be most effective at.
Initially I was disappointed with this book due to my high esteem of the author’s ability, experience & presentation skills elsewhere. A short exchange of e-mails clarified.
I was expecting something akin to (but not the same as) Phil Oakley’s work, giving concepts for the Private Investor. In fairness to myself (and previous comments) the publisher has not explained it well.
If you are a PI read this as an insight into how professional analysts work, with some suggestions for the PI. This is difficult for the PI as we do not have the skill, experience, connections or time to do the same.
Have a look at the Behind the Balance Sheet site (run by the author. There are superb short videos on aspects of Fundamental Analysis.
In summary, well written but perhaps not for the Private Investor.
If you are in the formative years of your investment career, this is probably the best single book you can read to understand the practical steps of idea generation, company analysis and valuation. There are a lot of investment books out there, but most tend to fall in one of two buckets. Half are dry, technical textbooks on accounting and valuation, which don’t really translate into the real world of making money in equity markets. The other half are lightweight advertorials from famous investors that sound very convincing, but tell you little of substance to help your own day to day process.
This book provides a really clear and comprehensive framework of the various processes of in generating good investment ideas. I run an equity hedge fund, and found this book reflected the day to day reality of how I do my job far better than any other investment book I have read. I could easily see myself recommending this book to analysts as they transition towards a decision making role
It’s clearly and engagingly written and so should appeal to amateur investors who have some previous experience and are familiar with the most common financial acronyms and jargon. The author acknowledges that private investors won’t have the same access to Bloomberg terminals, sellside research and good excel modelling skills. But there’s still a lot of very relevant suggestions in here.
But the audience that will find this most useful are buyside and sellside equity analysts, as well as portfolio managers who haven’t totally settled on their own process yet.
The Smart Money Method is the most comprehensive and therefore value for money book I've ever bought. I would say it is for investors of medium skill, so not a book for the novice. It assumes that the reader has basic investment skills but hey you can pick that up by browsing as you go along. I especially liked the section on understanding the industry which I'll use to assess my own organisations strenghs and weaknesses.
This is the best book that I have read on the process of researching companies. It goes into great detail on the thorough approach that the author has developed over his decades of experience as an analyst. The book does hammer home that investing is not easy and nor is getting an information edge but both can be helped by the diligent approach discussed in it. The use of annual reports as a great and underused resource is made throughout the book.
Don't be put off by how much work that goes into the research process. The lessons in the book can be tailored to suit your research. The author rightly points out that the 80/20 rule applies to research and is a reminder that more is not always better.
Chapters 5 & 6 are great discussions about the quality factor in businesses and the importance of it. Chapter 7 gives an interesting insight into the pros and cons of meeting company management.
Chapters 13 and 14 are real gems. Chapter 13 discusses the issue of technology and disruption on existing business models and how the research process will have to deal with this and change going forward. Chapter 14 on the possible impacts of Covid-14 on businesses and the analysis of them is also packed full of good points.
This book is worthy of a place in any investor's library.
Stephen describes his research process, how to analyse a company, step by step in a very clear manner. The book gives useful insights both for experienced and less experienced investors although some prior basic investment knowledge is required to fully understand how he analyses companies. The book presents in a methodological way the different phases a professional analyst goes through to come to an investment conclusion. The different chapters are broken down in small sections which makes it easy to read and pick up some practical tips along the entire research process. The chapter on analyzing a company’s financial statements is extremely clear and concise and tells you what to look for in a balance sheet, profit and loss account and the notes , very understandable for non accountants and at the same time very helpful for experienced readers. The chapter on valuations shows you easy to use valuation methods and his preferred valuation multiples. In each chapter Stephen also gives practical examples from his long career as financial analyst, mixing some successes and some pitfalls to look at. Overall a very informative and practical book, I will keep it as reference book close to my desk.