Product Description
The chart on the cover tells all. Buy the stock in the blue area. That’s where the stock is worth more than it costs. Don’t buy the stock in the red area. That’s where the stock costs more than it is worth. What Are Stocks Really Worth? shows how to locate the buy and don’t buy areas. It tells you what a stock is worth in dollars and cents. If the stock is worth more than it costs, buy it. If not, don’t buy it. It is as simple as that.
Step-by-step examples show how to analyze a firm’s financial statements and forecast future performance. Simple worksheets then show how much you can pay for the stock and still earn any minimum rate of return you specify. Even though SmartValue is cutting edge technology, simple worksheets reduce computations to grammar-school arithmetic. A hand calculator is all you need. You will learn with real examples and real firms, like Coca-Cola, Cisco Systems, and Microsoft. No made-up “XYZ” corporations.
You are not some “average” investor. You are special. The book tunes finding what stocks are worth to your individual situation — to your tax bracket, your time horizon, your tolerance for risk, and your alternative investments. It tells what the stock is worth to you, not to that “average” investor.
The book will make you an intelligent investor. You will learn the three key factors that tell what any stock is worth. Focus on those keys, and you can ignore the babble of the other statistics that crowd the financial pages.
Growth stocks! That’s where the glamour and hype is. And that’s where the risk is. You can easily pay too much for growth stocks. Rapid growth cannot last forever. Growth is bound to slow as gowth firms mature. The SmartValue Formula provides unlimited flexibility in accounting for how growth slows. You can even forecast by drawing free-hand curves on a sheet of graph paper. The SmartValue formula will translate your free-hand curves into a dollars-and-cents value for any stock.
What Are Stocks Really Worth? The SmartValue Formula for Buying Low and Selling High
28 Jul
11:52 am on July 28th, 2010
College textbooks in Finance seldom cover Stock Valuation in great detail. They usually go over several basic approaches to valuation, pointing out the problems inherent in each. The students gain an understanding of the issues involved, without getting bogged down in all the gritty details. It is an intellectually sophisticated approach, but falls short in applicability; the student is left wondering: if I had to assign a value to a stock, what exactly would I do ?
Wall Street financial analysts of course carry detailed stock valuation models in their laptops. They do not publish these models, partly because they are proprietary, but mainly for other reasons: the models are always changing, and the analysts lack the time, patience and teaching ability required to put the models in a form that would be publishable. Indeed, they have no incentive to do it.
Now along comes John B. Malloy. He is a retired financial executive who has developed a stock valuation model and is willing to publish it. Here it is, laid out in all detail, in an easy to follow step by step form. None of the academic waffle here; this is how I do it, says Mr. Malloy. Stock valuation in cookbook form.
Mr. Malloy provides worksheets that look somewhat like income tax forms, so that the reader can perform the calculations with a pencil and a calculator. Example: “Line 9. Dividend Payout. Divide the amount on line 7 by the amount on line 8 and enter the result here.” This has the advantage of making all the steps perfectly explicit, but it impedes understanding somewhat. I found that I had to rewrite the steps as equations (div_payout = div / earnings) to really understand what is going on. It would also be possible (and a good idea) to recast the worksheets as Excel spreadsheets. The pencil and paper approach is far too tedious and error prone.
Mr. Malloy goes far in making the book easy to understand, too far perhaps. Discussion of the function of the +/- key on a calculator (it changes the sign of the number you just entered!) and other such details seem unnecessary and even annoying. The price paid for absolute clarity is a somewhat dumbed-down, high-schoolish tone throughout the book.
Still, I enjoyed having a complete, explicit stock valuation model to look at and play with. It is not found in any other book that I know.
College courses will probably stick with ‘issues’ oriented books like Tom Copeland’s or A. Damodaran’s. But someone with a practical bent and an appetite for detail might want to look at this book as well.
Rating: 3 / 5
12:59 pm on July 28th, 2010
This book provides an objective method for determining stock valuations, buy and sell prices, and estimating the risk for lower price. The risk estimate is particularly valuable in the buy/sell decision. The book, which is not an easy read, could be a text for an investment class.
Rating: 5 / 5
2:11 pm on July 28th, 2010
this book was very helpful. i think many finance books are written by people who have no intention of having you understand them. this book is an excellent, no nonsense, technique for valuing stocks. the book requires focus, but is understandable by anyone with a high school education. the formula is is exceptionally clearly written and new ideas are built upon the basic formula in a clear cohesive manner. the author incorporates and digests the details of financial statement analysis and devises a formula from the most meaningful ratios. other books i have read seem to get lost in the details, and lose me in the process. this book also addresses the aspects that other methods seem to leave out- risk, slowing growth, when to sell or continue holding etc. the book is excellent. the only topic i found that could have been better developed, as i’m sure mr. malloy would have done an excellent job on, was the development of a number for risk premium. overall- this book was 10 stars. i would have paid $500 dollars for this book, and saved the money i wasted buying other less well done books
Rating: 5 / 5
3:01 pm on July 28th, 2010
I’ve read this book five or six times, now. It took that many times for me to truly understand the principles presented. All in all, I think this is the best and most thorough investment book I’ve read on the quantitative side of valuing stocks from an individual investor’s point of view, but with that said, it does have some significant flaws.
The biggest problem I have with the book was the way mathematical principles were presented in such a way as to shield the reader from the math (i.e., instead of using equations, he presented a sequence of key pad operations for a calculator). This made it much more difficult for me to grasp the fundamental concepts than would have been the case with a simple fluid presentation of the equations involved.
Even with it’s flaws, this book is well worth it’s purchase price for the dedicated individual investor.
Rating: 4 / 5
4:42 pm on July 28th, 2010
If you are looking for another arrow in your investment quiver, Malloy’s book is a must. He takes the reader through the analysis of mature and growth companies. Companies that pay a dividend are analyzed. This volume is not an easy read. Rather, it is a book to be studied and as you go through each chapter, it is important to develop spreadsheets so you can go back an analyze similar companies. Take care as you work through the book as you will find errors from time to time. Close readers will not find this a distraction as they are few.
Rating: 5 / 5