Product Description

From the "guru to Wall Street′s gurus" comes the fundamental techniques of value investing and their applications
Bruce Greenwald is one of the leading authorities on value investing. Some of the savviest people on Wall Street have taken his Columbia Business School executive education course on the subject. Now this dynamic and popular teacher, with some colleagues, reveals the fundamental principles of value investing, the one investment technique that has proven itself consistently over time. After covering general techniques of value investing, the book proceeds to illustrate their applications through profiles of Warren Buffett, Michael Price, Mario Gabellio, and other successful value investors. A number of case studies highlight the techniques in practice.
Bruce C. N. Greenwald (New York, NY) is the Robert Heilbrunn Professor of Finance and Asset Management at Columbia University. Judd Kahn, PhD (New York, NY), is a member of Morningside Value Investors. Paul D. Sonkin (New York, NY) is the investment manager of the Hummingbird Value Fund. Michael van Biema (New York, NY) is an Assistant Professor at the Graduate School of Business, Columbia University.

Product Details

• Amazon Sales Rank: #65469 in Books
• Published on: 2004-02-17
• Original language: English
• Number of items: 1
• Binding: Paperback
• 320 pages

Review
"No one can doubt there′s an urgent need to think clearly about investing, since many investors in Silicon Valley companies have suffered a stock market decline comparable to the Crash of ′29. The burned investor could find no better starting place than this superb book by four New York City value investors, all descended from the master of value investing, Benjamin Graham....They have written one of the most intelligent overviews of investing I′ve ever read, combining analytical rigor with intuitive description." (DAVID A. SYLVESTER, Published Sunday, Oct. 21, 2001, in the San Jose Mercury News)

"...Greenwald is an excellent guide on this subject..." (Sunday Times, 21 October, 2001)

Review
"...Greenwald is an excellent guide on this subject..." (Sunday Times, 21 October, 2001)

"...contemporary advice can be found in Bruce Greenwald′s excellent Value Investing..." (Sunday Times 23 December 2001)

From the Inside Flap
Described by the New York Times as the "guru to Wall Street′s gurus," Bruce Greenwald is a leading authority on value investing. His courses and seminars on the subject have drawn some of the savviest people in the investment world. Now, along with some colleagues, Greenwald reveals the fundamental principles that have made value investing one of the most consistently profitable investment techniques.

In an investment world frequently blinded by excessive optimism, short–term speculation, and other practices ranging from unsound to downright shady, value investing remains a reliable discipline even as it moves into a new century. Built on the works of Benjamin Graham, the father of security analysis, value investing is based on the premise that the underlying value of a financial security is measurable and stable, even though the market price fluctuates widely. The core of value investing is to buy securities when their market prices are significantly below their intrinsic values. Graham called the gap between price and value the "margin of safety." A large margin of safety both increases the potential return and reduces the risk of loss.

In Value Investing, the authors enrich the discipline by exploring its history, explaining its underlying principles, and setting guidelines for its successful application. The book covers such indispensable issues as:
∗ Where to look for underpriced securities
∗ How to determine the intrinsic value of a stock
∗ Alternative methods for constructing a portfolio that control risk without restricting investment returns

After discussing the basis of value investing, the book describes the proven techniques of some of the greatest value investors in history, including Warren

Buffett, Walter Schloss, Mario Gabelli, and Michael Price. By adapting Graham′s strategies to accommodate new investment climates, each has contributed a distinctive thread to make the discipline of value investing stronger and more flexible.

Value Investing is a must for any serious investor wishing to gain a better understanding of the principles and practices behind this time–tested approach. It will earn a place on the bookshelf next to Graham and Dodd′s Security Analysis and Graham′s The Intelligent Investor.

Customer Reviews

Successful, Long-Term Paths to Outperforming the Averages!
Value investing is so unpopular now that many do not know about this highly successful form of investing as practiced by its greatest masters. Value Investing helps to overcome that ignorance among the newest generation of investors. That is good and timely, because we seem to be entering a time when value investors often make their greatest coups.

If you believe that the stock market is totally efficient (current prices accurately discount everything that is or could be known about the company to accurately price a company’s securities), you will think this book is irrelevant. If you think that stock prices normally over or under value a company’s worth, you will find this book fascinating.

If you want to have a decent chance of learning how to outperform indexed mutual funds, this book is one of a handful that can help you. The methods and investors outlined in this book have successfully beaten the market averages for decades. So whether you try to do apply the concepts for yourself, or have your money invested by one of these top value investment managers, value investing is a discipline that can help you achieve superior investing results.

In some of the many back tests run in recent years to test for market efficiency concerning stock prices, simply buying stocks with low price/earnings and price/book ratios proved to outperform the market averages. More thoughtful stock-picking can do even better.

But the ideas in this book are far more important than that. Value Investing shows the many ways that situations where securities are underpriced can be found and exploited. The masters of this approach do a lot of fundamental homework, and look carefully from several different perspectives.

Many people identify value investing with Benjamin Graham and the early Warren Buffett. This book expands that perspective by also profiling Mario Gabelli, Glenn Greenberg, Robert Heilbrunn, Seth Klarman, Michael Price, Water and Edwin Schloss, and Paul Sonkin. You will find out about how they were educated, the value disciplines they have used, their long-term track records, and how they differ from one another.

You should realize that value investing is above-all an intellectual and cross-checking exercise (a bit like chess), far removed from emotion of day-trading and the thrills of following trading momentum. You need to be patient. Years can pass without any good opportunities arising. You will often sell stocks far before their ultimate peak. So you will have to think about how well the psychology of the careful hunter with one bullet in your rifle matches the way you like to do things. One of the hardest things to accommodate is that your results will look worst when everyone else is picking up easy money, mindlessly, by running with the herd of rampaging bulls.

As helpful as this book is, Value Investing has a number of weaknesses. First, new investors will probably get a little lost in the discussions. The authors usually begin at a level of understanding that people who have attended business school have. Second, you will find it hard to run down more details on concepts you don’t quite get. Third, you will get a flavor of what each investor has done . . . but not the full detail. So, think of this as a wine tasting. If you find some styles you like, plan to do more reading and studying. Fourth, if you were only taught the investing creed according to efficient markets, you will probably wonder what all the fuss is about. The book could have used more references to the new research that challenges the assumptions built into CAPM (the Capital Asset Pricing Model).

In your personal life, do you ever find it rewarding to get a great bargain on something of value that you care about? If so, value investing may be for you. The sense of satisfaction is similar, and the financial rewards can be greater.

Be cautious as you apply any investing method to outperform the market averages. Limit the size of your potential losses until you have fully developed your skill.

Look carefully, think . . . and be skeptical! There are many people trying to make the future seem rosier than it will be.

Good and complete introduction to value investing
I totally disagree with an other comment here that this book is complex. It is a very clear and complete introduction to value investing (but, yes, it is useful if you have seen the income statement of a company before). Contrary to 'The Intelligent Investor' of Mr. Graham himself, this book doesn't just discuss the value-investing philosophy, but it also gives some practical guidelines of how to apply value investing in practice, including some calculation examples.

The profiles of the famous value investors give some ideas of different ways to apply this philosophy in practice. It is true that if you have read the letters of Warren Buffett already, this book doesn't give you any new information about him, but who can better explain Mr. Buffetts way of investing than he himself? Overall, this book provides a good introduction to value investing.

Star Trek
The authors announce their intention to bravely go "beyond" Graham and Buffet. I found their effort extraordinarily interesting. Not because it brings new ideas from the frontiers of Value Investing; but rather because it forced me to revalidate old ones.

Written mainly by academics, the book attempts - with undeniable clarity - to provide a simple framework for valuation of a firm using Value Investment principles. First, three sources of value are defined: Asset Value; Earnings Power Value; and Value of Growth. Second, some conceptual tricks are employed to link them in a theoretical structure capable of supporting hours of animated tutorial discussion.

The importance of Asset Value in the scheme derives from the idea that if a firm that has no defenses against competitors it is worth no more, or less, than the replacement value of the assets necessary to set up a similar business.

To illustrate, imagine a defenseless firm that is worth 2x on the stockmarket while its productive assets are worth only 1x. Attracted by the absence of barriers to entry and by the high market value achievable with a substantially lower investment, enterprising businessmen set up similar businesses.

As the new capacity comes on stream the market is inundated with products of the same type and prices and profits consequently fall. The process only ends when the market value of all the firms has fallen to the value of their assets, thus eliminating the differential that attracted new market entrants in the first place.

For this to happen we must have an idealized market of perfect competition: lots of buyers and sellers, undifferentiated products, no barriers to entry, perfect information, etc. In practice, however, a dozen firms with similar assets will generate a dozen different levels of profit. And in the end, as the book admits, it is profit expectations, not assets, that determine the value of an on-going business.

I wondered if Graham and his associates ever subscribed to this concept. In my 5th edition of "Security Analysis" I found the ambiguous comment: "ECONOMISTS believe that high returns on capital attract competition which ultimately forces down the rate of profit" (my capitalization). This same edition affirms that it is "The earning power of the assets in use (that) determines their investment value" (rather than the replacement value of these assets). I could find no evidence that the notion formed a key part of the valuation process described in the value-investing classic.

Moving on, We are told that the major difference between Earnings Power Value and Value of Growth, when used to estimate intrinsic value, is the confidence we can place on the result. It is notable, however, that both definitions of value exist in the same continuum. To calculate Earnings Power Value we can simply assume growth to be zero in the traditional Discounted Cashflow formula for estimating intrinsic value.

Beyond a certain point it is reasonable to suppose that the degree of confidence we can put on an intrinsic value calculation falls with the size of profit growth projected. How much faith would we have in a value based on a growth projection of 30% per annum, for example? But why should zero growth produce an intrinsic value closer to the truth than 5% per annum? Is one really inherently safer than the other? What about the risk of deceleration in the case of an assumption of zero growth? Conservatism does not mean ignoring reality.

Once again it all seems part of a jolly academic game. The questionable differentiation between Earnings Power Value and Value of Growth allows the authors to find a role for another element: the franchise - the defenses the firm possesses against competition. They thus arrive at a tidy little conceptual framework. If a firm has no franchise then its intrinsic value is represented by its Asset Value. If the franchise is weak then we base our estimate on its Earnings Power Value. And if it has a rock-solid franchise we might just be able to introduce the Value of Growth. Does all this have any useful meaning in the real world?

Aside from these conceptual questions I found the book exceptionally practical in describing the details of how to value the assets and evaluate the franchise of a firm. On the other hand I found the profiles of eight value investors rather tedious.