Learn how to identify safe, under-valued investments from "the father of value investing" himself.
If you don't know
- the difference between investing and speculation
- how to identify risk in an investment
- how to avoid FOMO and see through hype
- and how to avoid buying high and selling low
...this book should be the next thing you read.
We want you to be a successful investor, but that journey starts with the knowledge found in this book.
Do your portfolio a favor and read the reviews on Amazon.
A successful investor himself, Benjamin Graham served as mentor to legendary, billionaire investor Warren Buffet, as well as several other notable investors throughout the years. Graham is one of the founding fathers of value investing, and this book is the definitive work on the subject.
The Intelligent Investor will be the single most important book in your library. Whether you have no knowledge of value investing or you're a seasoned vet, this master class in value investing should be part of your repertoir. The lessons taught by this book are invaluable when it comes to the mentality and outlook of a value investor, and it will almost certainly prevent you from making many costly mistakes. This is a must-read for fledgeling investors and veterans alike.
Summary
“By far the best book on investing ever written.” — Warren Buffett
The greatest investment advisor of the twentieth century, Benjamin Graham taught and inspired people worldwide. Graham's philosophy of “value investing”—which shields investors from substantial error and teaches them to develop long-term strategies—has made The Intelligent Investor the stock market bible ever since its original publication in 1949.
Over the years, market developments have proven the wisdom of Graham’s strategies. While preserving the integrity of Graham’s original text, this revised edition includes updated commentary by noted financial journalist Jason Zweig, whose perspective incorporates the realities of today’s market, draws parallels between Graham’s examples and today’s financial headlines, and gives readers a more thorough understanding of how to apply Graham’s principles.
Vital and indispensable, The Intelligent Investor is the most important book you will ever read on how to reach your financial goals.
Transcript
Value investing is an investment strategy. Value investors attempt to purchase company shares for what is known as a discount.
A share is at a discount when the current price is less than the intrinsic value for that share.
Intrinsic value is the calculated value of a share, based on the company’s real-world performance.
While intrinsic value is not equivalent to stock price, values converge when the market realizes the underlying worth of the stock.
Stocks become over- or under-valued when certain events excite or spook investors.
Such events may include:
- under- or over- estimating earnings
- product or acquisition announcements
- corporate scandals
- macro economic events
- macro economic events
- investing trends
- etc.
Events may have little impact on the underlying value of the stock, even though markets react emotionally.
Value investors use fundamental analysis to guide their actions, so they can take advantage of an emotional market.
Transcript
Stocks, or shares, represent real-world ownership of a portion of a corporation.
When you own a share, you own a percentage of a company proportional to the number of shares issued by that company.
Shareholders are literal owners, and have a proportional stake in earnings and equity, as well as receive dividend distributions provided to share owners.
Companies sell shares as a way to raise capital, which may be used to fuel growth, or to pay down debt.
Shares are issued to the public for the first time in what is called the initial public offering, or IPO.
Corporations may also issue stock after the IPO. These secondary offerings cause dilution, which is the reduction in existing shareholders’ proportional ownership.
In profitable times, companies may use excess capital to repurchase issued shares and retire them, in order to recapture value for remaining shareholders.
Investors should be aware of when and why companies they own issue and retire stock, so they understand how value is being redistributed, and to monitor the fiscal responsibility of management.
Transcript
Dividends are cash payments made directly to shareholders.
If a company brings in more cash than it can effectively reinvest, it may distribute extra cash to shareholders as dividends.
Because sheer size can impede a company’s ability to grow, large, mature companies will often pay a dividend to owners in lieu of expected growth.
Dividend payments are made at a fixed cash amount per share, usually quarterly. Each payment period, the board of directors decides whether and how much of a dividend is paid.
Payment amounts are often increased at a slow, steady rate. However, in difficult times, companies may reduce or cease paying dividends, in order to preserve cash. Such actions may indicate financial stress and should be noted.
Yield is a dividend's effective ROI to the investor. Dividend yield is calculated by summing (or projecting) dividend payment amounts over a year, and then dividing by the current price of a share.
Yields fluctuate daily, inversely reacting to share price. This allows investors to lock in higher overall payment amounts by purchasing dividend stocks at discount rates.
Transcript
Tikyr is a value stock discovery tool.
Centered around Value Investment, Tikyr helps you quickly find overlooked, deeply valuable company shares.
Tikyr runs automated valuation models on hundreds of companies from popular indexes and hedge-fund portfolios.
On the main page, valuations for companies are displayed alongside financial figures and company statistics.
Paired with rich user-configurable filtering and visualization tools, this system makes finding possible investment opportunities incredibly fast.
Company pages present users with pricing charts, detailed valuation data, financial reports and news articles.
Users can create portfolios to track their favorite companies, and annotate each company for later reference.
Visualizations, filters and other tools throughout Tikyr are highly customizable, and new data views and features are added regularly.
Users may suggest features, and vote on their favorite feature suggestions, allowing the value investment community to help shape Tikyr’s feature set.
Tikyr is free to use. Find your next investment opportunity today!
"A road map for investing that I have now been following for 57 years."
— Warren Buffett
First published in 1934, Security Analysis is one of the most influential financial books ever written. Selling more than one million copies through five editions, it has provided generations of investors with the timeless value investing philosophy and techniques of Benjamin Graham and David L. Dodd.
As relevant today as when they first appeared nearly 75 years ago, the teachings of Benjamin Graham, “the father of value investing,” have withstood the test of time across a wide diversity of market conditions, countries, and asset classes.
This new sixth edition, based on the classic 1940 version, is enhanced with 200 additional pages of commentary from some of today’s leading Wall Street money managers. These masters of value investing explain why the principles and techniques of Graham and Dodd are still highly relevant even in today’s vastly different markets.
An endlessly entertaining and insightful look into business and trading during the 1960s. Read some of the chapter names--
- The Day Henry Ross Perot Lost $450 Million
- Early Warnings Along Wall Street
- Drugs, Fails and Chaos Among the Clerks
- Corporate Chutzpah and Creative Accounting
The Roaring 20s, the Post-War Boom, the Go-Go Years, the Roaring 90s and subsequent Tech Boom, and most recently the Build-Back-Better bubble-- all of these bull markets have incredible stories of growth, speculation, exhuberant highs and tragic losses that we can learn from. John Brooks has a knack for presenting insider business epics and cautionary tales in an engaging and entertaining way. This book is a tongue-in-cheek presentation of some of the biggest personalities, businesses and trades behind the 60s boom era, retold in a casual style that makes you feel like you're sharing a scotch with the insightful business reporter in his Long Island rec-room.
If you want to get in the business mindset and live some of the romanticism of a storied era, while also having a mirror held up to your own perception of business players and practices, this book presents all the right elements in an engaging, easy-to-read manner. While this is a perfect bed-time or airplane read that you can easily pick up or put down, you'll always be left anticipating the next chapter.
Summary
The Go-Go Years is the harrowing and humorous story of the growth stocks of the 1960s and how their meteoric rise caused a multitude of small investors to thrive until the devastating market crashes in the 1970s. It was a time when greed drove the market and fast money was being made and lost as the “go-go” stocks surged and plunged. Included are the stories of such high-profile personalities as H. Ross Perot who lost $450 million in one day, Saul Steinberg’s attempt to take over Chemical Bank, and the fall of America’s “Last Gatsby,” Eddie Gilbert.
A masterpiece of entertaining epics and cautionary tales by John Brooks.
Quotes
- Evidence that people are selling stocks at a time when they should be eating lunch is always regarded as a serous matter.
- Now that the Stock Exchange and the member firms had decided on a deed of self-sacrifice, the problem was... how to arrange the other side to do the sacrificing.
Interesting, humerous, engaging and insightful. 12 stories of intrigue and upset at the highest eschelons of Americas biggest corporations.
Learn about the inner workings of past and present juggernoughts in the US corporate world. A good read to help you understand the people behind the numbers, and why you can't rely on balance sheets alone. A fun way to log a few anecdotes and test your daily assumptions about business.
Summary
From Wall Street to Main Street, John Brooks, longtime contributor to the New Yorker, brings to life in vivid fashion twelve classic and timeless tales of corporate and financial life in America.
What do the $350 million Ford Motor Company disaster known as the Edsel, the fast and incredible rise of Xerox, and the unbelievable scandals at General Electric and Texas Gulf Sulphur have in common? Each is an example of how an iconic company was defined by a particular moment of fame or notoriety; these notable and fascinating accounts are as relevant today to understanding the intricacies of corporate life as they were when the events happened. Stories about Wall Street are infused with drama and adventure and reveal the machinations and volatile nature of the world of finance.
John Brooks’s insightful reportage is so full of personality and critical detail that whether he is looking at the astounding market crash of 1962, the collapse of a well-known brokerage firm, or the bold attempt by American bankers to save the British pound, one gets the sense that history repeats itself. Five additional stories on equally fascinating subjects round out this wonderful collection that will both entertain and inform listeners. . . Business Adventures is truly financial journalism at its liveliest and best.
Challenge your cognitive biases and look past first impressions. This book is about hardening our perceptions against common mistakes we make when evaluating what's in front of us.
- Learn how to identify and avoid cognitive biases that will trick you into losing money
- Learn to see through the noise and hype to find value
- Learn fundamental probability and statistics concepts that will assist you in making better investment decisions
Summary
The Freakonomics of math—a math-world superstar unveils the hidden beauty and logic of the world and puts its power in our hands
Math allows us to see the hidden structures underneath the messy and chaotic surface of our world. It’s a science of not being wrong, hammered out by centuries of hard work and argument. Armed with the tools of mathematics, we can see through to the true meaning of information we take for granted: How early should you get to the airport? What does “public opinion” really represent? Why do tall parents have shorter children? Who really won Florida in 2000? And how likely are you, really, to develop cancer?
How Not to Be Wrong presents the surprising revelations behind all of these questions and many more, using the mathematician’s method of analyzing life and exposing the hard-won insights of the academic community to the layman—minus the jargon. Ellenberg chases mathematical threads through a vast range of time and space, from the everyday to the cosmic, encountering, among other things, baseball, Reaganomics, daring lottery schemes, Voltaire, the replicability crisis in psychology, Italian Renaissance painting, artificial languages, the development of non-Euclidean geometry, the coming obesity apocalypse, Antonin Scalia’s views on crime and punishment, the psychology of slime molds, what Facebook can and can’t figure out about you, and the existence of God.
Ellenberg pulls from history as well as from the latest theoretical developments to provide those not trained in math with the knowledge they need. Math, as Ellenberg says, is “an atomic-powered prosthesis that you attach to your common sense, vastly multiplying its reach and strength.” With the tools of mathematics in hand, you can understand the world in a deeper, more meaningful way. How Not to Be Wrong will show you how.
- Learn how trends take hold and propagate
- Explore how people process information
- Better understand how you yourself consume and apply data out in the world
Quote
- ABC viewers who voted for Reagan would never, in a thousand years, tell you that they voted that way because Peter Jennings smiled every time he mentioned the President. They'd say that it was because they liked Reagan's policies, or they thought he was doing a good job. It would never have occurred to them that they could be persuaded to reach a conclusion by something so arbitrary and seemingly insignificant as a smile or a nod from a news caster.
Summary
From the bestselling author of The Bomber Mafia, discover Malcolm Gladwell's breakthrough debut and explore the science behind viral trends in business, marketing, and human behavior.
The tipping point is that magic moment when an idea, trend, or social behavior crosses a threshold, tips, and spreads like wildfire. Just as a single sick person can start an epidemic of the flu, so too can a small but precisely targeted push cause a fashion trend, the popularity of a new product, or a drop in the crime rate. This widely acclaimed bestseller, in which Malcolm Gladwell explores and brilliantly illuminates the tipping point phenomenon, is already changing the way people throughout the world think about selling products and disseminating ideas.
When and what to buy are the ultimate decisions we make as investors. But we are our own worst enemies when it comes to pulling the trigger. Harden yourself against the mental blocks that cause investors to buy high and sell low with these real-world studies and examples.
- Learn what shapes our decision making
- Learn about cognitive bias and recognize mental traps
Summary
Why do our headaches persist after we take a one-cent aspirin but disappear when we take a fifty-cent aspirin? Why do we splurge on a lavish meal but cut coupons to save twenty-five cents on a can of soup?
When it comes to making decisions in our lives, we think we're making smart, rational choices. But are we?
In this newly revised and expanded edition of the groundbreaking New York Times bestseller, Dan Ariely refutes the common assumption that we behave in fundamentally rational ways. From drinking coffee to losing weight, from buying a car to choosing a romantic partner, we consistently overpay, underestimate, and procrastinate. Yet these misguided behaviors are neither random nor senseless. They're systematic and predictable—making us predictably irrational.
Equity is what is left over when the value of liabilities is substracted from the value of assets owned by a company. It is similar in concept to an individual's net worth.
Theoretically, if a company were completely liquidated and debts were paid off, this would equal the remaining cash left for shareholders.
Equity can be considered a measure of value. While it does not fully account for a company's ability to generate income (another important value metric), for a healthy, well-run company, it represents a significant lower bound for what a company may be worth to an investor, and a market capitalization per equity ratio (or share price to book value) of 1 could be considered a significant buying opportunity (see this warning).
"Book value" is another way to describe equity, although it usually describes equity on a per share basis (shareholder equity, divided by shares outstanding). Sometimes the more explicit term "book value per share" is used.
Assets represent the valuable items on a company's balance sheet, and contribute positively to the equity of a company-- as opposed to liabilities, which contribute negatively to equity. Assets help generate income for a company, and can be anything from cash or inventory, to securities or intellectual property.
Assets may be tangible, like property, plants and equipment (PPE) or intangible, like goodwill, a value added to the balancesheet to account for paying a premium during a merger/acquisition (where the whole is assumed to have been worth more than the sum of its parts, justifying the extra cost).
A liability is a financial or business obligation from one entity to another-- as examples, loan debt or services owed are liabilities. "Debt" usually describes cash liabilities, such as accounts payable, bonds or loans, which can be short-term debt (due in under 1 year) or long term debt (due in over 1 year).
Trailing twelve months -- usually referring to a sum of a reported financial value over the last twelve months.
Most recent quarter-- usually the most recent recorded financial quarter.
The Balance Sheet, the Income Statement and the Cashflow Statement outline company performance and financial state, and are compiled by companies as part of their quarterly and yearly financial reports. These documents are incredibly important to investors.
The Balance Sheet outlines the company's state of finances at the end of a reporting period, listing assets (including cash, saleable product, raw materials, equipment, accounts receivable and non-tangibles) debt and liabilities (including current/short-term liabilities and long term debt), as well as shareholder equity (the share of assets shareholders can claim ownership of, less liabilities).
The Income Statement details company income and expense figures for the period, such as revenue, the costs it pays to other companies for goods and services, taxes, and its net income or loss for the period.
The Cashflow Statement highlights how cash flows into, out from, and within the company, and the net change in cash for the period.
Financial statements provide insight into the health of the company, such as its level of debt to income, whether it has superfluous amounts of cash (indicating poor cash usage by management, or anticipated headwinds), or too little cash compared to debt. The Cashflow Statement can indicate whether it's made significant investments for the period, or taken out large loans for investment purposes or due to financial hardship. Combined, these documents can indicate whether the company is growing and making money, or bleeding itself dry and likely to fail.
These documents are the most important tools in the investors' toolkit and should be understood inside and out by investors. An investor should be wary of investing in a stock before fully grasping each financial figure and understanding what it says about the company's overall financial health, and its future.
For help on understanding these documents, and important financial figures related to company health, see these resources.
What is Beta Mode?
Beta Mode refers to the "Beta Mode Average Intrinsic Value" (the IVBeta metric and its derivatives), and Tikyr's system for deriving models included in the Beta Mode average. This mode uses basic machine learning to correlate deltas in model output with each stock's performance in the market. This results in a set of models whose period-over-period performance more closely tracks stock price performance than the All Model mode (A Mode).
Why is this useful?
Beta Mode offers a few advantages over All Model Mode (a.k.a. A Mode):
- Beta Mode automatically weights more heavily the fundamentals that investors are looking at for a given stock, by including such models in its averages. So, if investors in a given stock are watching cashflow-based valuations, these models are included in Beta Mode. If investors are more interested in net income or retained earnings, those models are included.
- Beta Mode, through backtesting, is shown to be more historically predictive in shorter timeframes, with respect to stock price performance.
- Beta Mode (or, more precisely, the IVBetaPriceTargetRatio metric, which models expected price based on current valuation) is more comparable between stocks than A Mode, due to Beta Mode' higher correlation with price performance.
Why is A Mode still useful?
Ultimately, when the chips are down, fundamentals win out. Especially in steep declines in stock price, it's a visible phenominon in the back tests for the price of consistently over-valued stocks to return to A Mode valuation levels, because these are the levels at which stocks become attractive to the average investor with diverse valuation preferences. When price falls below even the cheapest models, assuming the stock belongs to a quality company, there will be investors waiting to pick up the deal. This is where A Mode shines the brightest.
Conversely, for stocks that are consistently under-valued (and of high quality) A Mode may be a theoretical target price, should those stocks become popular buys.
When something looks like it should yield massive returns, it probably also comes with massive risk.
e.g. A cheap company could merely be unfashionable, or there may be good reasons behind a low price.
Always consult a licensed financial advisor before making investment decisions.
Valuations
At best, intrinsic values approximate the real underlying financial value of a company, providing a maximum price an investor might be willing to pay for a share. If you don't subscribe to that particular value investment axiom, intrinsic values derived from the same models could be considered metrics that are comparable across companies (whatever such metrics happen to really mean).
Either way, valuations are derived from historical data and/or analyst estimates, which are not fool-proof, and should make up only one of many tools in the value investment arsenal.
The Broad-Brush Approach
With that in mind, here are some features of Tikyr's valuations to consider.
- Valuations are completely automated, and not reviewed by humans.
- Valuations are based entirely on historical data. Tikyr uses no forward looking estimates (except for algorithmic projections).
- Valuations use conservative inputs and implementations.
- Valuations are susceptible to volatile earnings figures.
- Various valuation models are employed, from which an average is also derived.
These points imply both benefits and drawbacks:
- There's no guesswork, but similarly there is also no oversight. Anomalies in source data are not second-guessed.
- Not using forward looking estimates means projections are based entirely off of the company's (and management's) past performance. While analyst estimates attempt to account for market conditions (and other factors not so trivially derived from data), historical data does include the impacts of previous head- and tail-winds the company has encountered. This reinforces that recent changes in company management and financials should be considered along-side value.
- Valuations err on the side of over-valued when a choice is required of the algorithm. One could conclude this is a positive if the goal is to mitigate risk.
- Valuation fluctuations may be interpreted as averages and trends instead of being read naively as spot target prices; conversely, stable valuation growth may be interpreted as reliable company performance.
Vigilance
Regardless of the valuation source and/or model an investor chooses (including their own), it is important to remember that no valuation guarantees performance. And, for a value investor, valuation is only one piece of the puzzle.
When considering a company, valuations should be prioritized after (or at least along-side):
- An appropriate level of debt
- Effective management
- A nearly insurmountable competitive advantage (a.k.a. a moat)
- A product or service catalog that will be relevant far into the future
There is a myriad of resources available to a value investor today. Investors should leverage these, as well as have a firm grasp on the basics of value investing, so that they can become the best judges of potential company performance, with or without valuations.
Finally, consider the following quotes from Warren Buffet and Jeremy Grantham:
- It's far better to buy a wonderful company at a fair price, than a fair company at a wonderful price. -- Warren Buffet
- Buy a stock the way you would buy a house. Understand and like it such that you'd be content to own it in the absence of any market. -- Warrent Buffet
- Value should be "cheap for what you are..." A cheap [price-to-book] is a market's vote on the worst assets out there in the market place. The worst PE [ratio] is the market's vote on the worst earnings, most likely to be over-stated or down-graded. And the same with [dividend] yield; it's the market's vote on the most likely to be cut. -- Jeremy Grantham
In short, valuations are just tools. It's in a value investor's best interests to be vigilant, do their research, and choose their investments with the confidence of someone who knows every aspect of what they are buying and that valuations are justified.
Always consult a licensed financial advisor before making investment decisions.
Assuming a high quality investment follows the expected upward growth trajectory, how exactly would a long-term investor capitalize on accrued value?
Value Investors purchase stocks that are under-valued, or at least fairly valued. This under- (or fair) valuation comes with the expectation that the market will realize the error of its under-valuing ways and make amends. The timing and degree to which this comes about cannot be known.
Given this (or perhaps despite this) how might an investor expect to realize value from their investment?
- Thesis: Companies can be out of favor for the short-term. An investor buying an out-of-favor company that is high value and has all the other qualities of a good investment, should eventually see that company come back into favor, at which point the investor is free to liquidate their position.
- Thesis: Prices grow along with quality companies, even if they may lag. By virtue of progress and the drive of good companies to perform at progressively higher levels, company value may be expected to continuously grow, with share price lagging. If valuation manages to out-pace price, an investor may choose to hold their investment. If price out-paces value, this again may offer an opportunity to liquidate at an advantage.
- Thesis: Mature companies issue dividends.
Money cannot be hoarded forever, and effective, profitable, growing companies also grow cashflow. Massive mega-cap corporations have limited paths forward in order to employ their accrued cash, over the very long term. Such a large company could:- Buy back all its millions of shares. As it makes ever more money, it funnels excessive amounts of capital directly into shareholder pockets through share buy-backs (which increase existing shareholders' relative stake in the company, making shares more valuable to the market). Of course each individual share would come to represent a massive cross-section of the corporation, and market forces would take hold such that shares would become worth literally billions of dollars (as if Berkshire Hathaway's $400,000 Class A share wasn't already impressive).
- Grow to every corner of the Earth, buy out all mom and pop businesses around the globe, and reach out to the nearest inhabitable planet in order to find enough opportunities by which it can employ its ever-growing cash flow.
- Conjure markets. Become an unprecedentedly effective market penetrator and invent more products and services than anyone thought the world economy could support, fostering/requiring infinitely more revenue, demand, wage growth and inflation, becoming a bubble economy unto itself (see mega caps Berkshire Hathaway, Toyota, Samsung, etc for examples of extraordinarily broad product portfolios).
- Issue dividends. The world's largest companies will eventually have to come to terms with market forces and antitrust laws. Of course, BRK's strength is in it's decentralization and distributed governance model (and an effective break-up is not out of the question), but, either society will have to accept quadrillion-dollar companies, or BRK et al. will (eventually) have to stop growing and deploy their cashflow in new ways (e.g., pay dividends).
Facetiousness aside, market forces and antitrust laws encourage dividends from mature companies. Of course most companies fail or stagnate before reaching multi-billion-dollar valuations (one reason an investor should have solid selling rules set out in advance). However, massive, performant companies will often eventually issue dividends, as required by said market forces.
In short, it is never a bad idea to buy a good quality, valuable company and hold it, possibly for decades, assuming continued fair valuation. Chances are good that this will eventually lead to a dividend return, leveraged up by years of company growth and compounding cashflow reinvestment. Ostensible 2~5% yields for today's long-term dividend investors may actually be massive double-digit yields, as compared to their initial investments. The markets are there to weigh these possible fates against opportunity cost relative to other potential investments, for each individual company, at that specific point in that company's journey.
Still, an investor must always be sure long-term company outlook remains strong, and management remains vigilant, as they hold on to their investments.
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