Book on valuation framework

[jaguar]

Hi

I am looking for a book that describes some kind of framework for valuation of stocks and bonds with regards to both quantative and qualitative values. The only thing i found so far is the original "security analysis" which sounds ok but there have to exist some later works.

I am not looking for a book on how to read financial statements, portfolio theory or calculating NPV. I am more looking on something on how i can integrate all indicators and get a estimated $ value of a stock or bond.

[Dan Mezick]

The 'Intelligent Investor' will do the trick, a well-known book associated with Warren Buffett. See it here:

The Intelligent Investor (http://www.amazon.com/exec/obidos/tg/detail/-/0060555661/qid=1121107458/sr=8-1/ref=pd_bbs_ur_1/104-1589185-6325511?v=glance&s=books&n=507846)

..the 'Customers who bought this book also bought' suggestion list will lead to the other books along these lines.

I'm not recommending this book or value investing;

"do your own due diligence carefully before you invest or send money."

[DesertCat]

[ QUOTE ]
Hi

I am looking for a book that describes some kind of framework for valuation of stocks and bonds with regards to both quantative and qualitative values. The only thing i found so far is the original "security analysis" which sounds ok but there have to exist some later works.

I am not looking for a book on how to read financial statements, portfolio theory or calculating NPV. I am more looking on something on how i can integrate all indicators and get a estimated $ value of a stock or bond.

[/ QUOTE ]

I'm not sure I understand your post, but, I'll try. Security Analysis by Ben Graham is all about valuing companies based on balance sheets and earnings. It also covers things like safe debt coverage levels that affect the risk level of your investment.

It's a very dry book and the later editions might be a little more readable (I'm on the road, can't tell you which version I have).

Intelligent Investor by Ben Graham is basically a more approachable version of SA.

Effectively the Ben Graham approach is that a companies value is the NPV of all future income it's owners can recieve from it. The trick is how to gauge what the likely future income will be, what current net assets are really worth, and whether the management is going to return those profits and excess assets to shareholders some day.

These books delve into the various areas of the financial statements to help you determine what is real, what is overstated, and what might be understated.

[player24]

Before you buy anything else, check out Damodaran.

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/valuation/val.htm

[jaguar]

Maybe i should try to rephrase my question. Please have patience since english is not my native language.

I am an economics student with specialization in finance theory. I pretty much much know modern portfolio theory, how to calculate a boatload of diffrent ratios from statements and a lot of nice formulas. The area i am lackin in is however how to apply thoose things in deciding if an investment is a good bet or not. The ideal book for me would be filled with case studies on investment opportunities and how an experienced investor aproaches them. I would like to read about such things as:

- what weighting to give diffrent indicators in your analysis
- when to use comparative studies and when they become traps
- how to account for small volume in a stock
- a framework for qualitative analysis like boardmembers, market trends, macroeconomics, expected earnings increases and future growth
-How to sum all this up in an expected stock price

Also i would love if the book was not only on stocks but also included real estate and bonds.

I have found plenty of books on how to read statements and how to calculate single and multifactor NPV. Also i found a few on general investment philosophy. The thing i want to know is how to exectute the analysis of a investment decition.

I hope you understand me a bit more now.
Thankful for all answers.

[jaguar]

[ QUOTE ]

Before you buy anything else, check out Damodaran.

[/ QUOTE ]

While surfing amazon earlier today and reading table of contents i stumbled upon this guy. I must say every book he had written sounded very interesting and it was pretty much the only things that seemed to be interesting except for the original graham works. Could you please tell me witch books you read by him and what you thought about them.

[player24]

I took his Finance class at NYU Stern.

You can't beat this --> A free book online:
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/valn2ed/book.htm

[jaguar]

wow! i was just about to buy this particular book and it is here complete and everything!

Thank you very much for pointing this out, will buy his Damodaran on Valuation and investment Fables instead.

[DesertCat]

[ QUOTE ]
I am an economics student with specialization in finance theory. I pretty much much know modern portfolio theory, how to calculate a boatload of diffrent ratios from statements and a lot of nice formulas. The area i am lackin in is however how to apply thoose things in deciding if an investment is a good bet or not.

[/ QUOTE ]

There is a large philosphical gulf between modern finance theories and Ben Graham/Warren Buffett "Value" investing.

Basically, most value investors regard large portions of academic financial teachings as useless rubbish. Specifically the ideas that the market is always efficient, or that a stock's beta measures it's risk level.

In fact, some value investors argue the higher the beta, the less risk there is in a stock, because you have more opportunities to enter and exit your positions when it is advantagous to you. This is Warren and Ben's old analogy about "Mr. Market" and how he is your friend.

You probably don't to hear that that some people regard that expensive education you worked so hard for as worthless (but you don't have to agree with them either!). To further your education and get a better idea of where the value investor criticism comes from, you might also want to read Warren Buffett's collected Berkshire Hathaway shareholder letters. They are a pleasant read, and in a breezy manner lay out much of his investing philosophy as well as his objections to modern portfolio theory. Like I said, you don't have to agree with them, but you should at least understand their position if you want to be a skilled investor.

The letters are available for free at BerkshireHathaway.com. Best of luck to you on all your investing endeavors.

[Dan Mezick]

I'm just back from the Berkshire site. That's some great reading. Thanks for the great post.

[jaguar]

[ QUOTE ]

Basically, most value investors regard large portions of academic financial teachings as useless rubbish. Specifically the ideas that the market is always efficient, or that a stock's beta measures it's risk level.


[/ QUOTE ]

I have yet to run into anyone in the finance community who really belives markets are 100% efficient. Also for the market to be fully efficient there have to be plenty of people beliving that it isnt effeicent that are researching prices looking for mispriced assets. If the market was fully efficient such work wouldnt be worth its time and to few people would do it and therefor the market cant stay fully efficient. Point i want to make is that most people belive that assets can be mispriced but the price tend to adjust to the value of the cashflow for the asset. The EMH is however a quite useful assumption when designing models.


[ QUOTE ]
You probably don't to hear that that some people regard that expensive education you worked so hard for as worthless (but you don't have to agree with them either!)

[/ QUOTE ]
I must be lucky that education is free in my country and its a good excuse to be able to play poker without having people too look down on you as a gambling loser. =)

Thanks for the tip however, will add this to my long "to read" list.

[adios]

You can also download his latest version of Investment Valuation as well.

[lu_hawk]

Valuing companies precisely is very difficult to impossible, what is much easier is finding companies that are so far off from what they should be worth that you don't need to be precise. Believe what I say and read books that will help you learn to think this way. Any book that contains a formula with more than 2 variables should definitely not be read.

[Sniper]

Valuation is in the eye of the beholder!