Global Value Investing
A multifaceted approach to value investing with stock valuation based on intrinsic value estimated from cash returns, appraised value of assets, and other facets of value.
The following books, articles, and resources are considered the most important and useful for the practice of intrinsic value investing. Direct links to Amazon.com online book store are included for books they carry.
Go directly to The Theory of Investment Value by John Burr Williams.
|SOURCE||Book, Article or other Resource|
|Bernstein, Peter L., 1992, Capital Ideas : The Improbable Origins of Modern Wall Street. New York: The Free Press. An excellent appraisal of the limitations of Benjamin Graham's changing rules of investment.|
|Berkshire Hathaway||Buffett, Warren E., 1977 to date, "Chairman's Letters To The Shareholders (Historical Compilation)." Berkshire Hathaway Inc. Official Home Page. These letters from annual reports include wit, wisdom and investment methods. Also available for purchase in book form (see the listing for Lawrence A. Cunningham).|
E., 1984, "The Superinvestors
of Graham-and-Doddsville" in Hermes,
the Columbia Business School magazine (Fall
1984): 4-15. The superinvestors, in order of appearance
of performance results are: (1) Walter J. Schloss; (2)
Tom Knapp and Ed Anderson at Tweedy, Browne, Inc., (3)
Warren E. Buffett at Buffett Partnership, Ltd., (4) Bill
Ruane at Sequoia Fund, Inc.; (5) Charles Munger; (6) Rick
Guerin at Pacific Partners, Ltd.; (7) Stan Perlmeter at
Perlmeter Investments; (8) The Washington Post Company,
Master Trust pension fund; and the (9) FMC Corporation
Check your local library and Inter-Library Loan facility for periodical articles.
This article is also included as an Appendix to The Intelligent Investor by Benjamin Graham, listed below.
|Amazon.com ISBN 0374138583||Chancellor, Edward, 1999, Devil Take the Hindmost : A History of Financial Speculation. New York: Farrar, Straus & Giroux. Exceprts from review by Roger Lowenstein, Wall Street Journal, 1 June 1999, A20, 'Money for Nothing': It has become fashionable in academia to argue that bubbles were not, in fact, bubbles--that is, they were not irrational at all. ... the academic apologists have themselves become tiresomely familiar. ... the "rational bubble" defense is merely an elaborate restatement of the greater-fool theory (there is always supposed to be one). ... The lay reader will no doubt marvel that intelligent professors turn somersaults to find logic in some of the looniest excursions in financial history. ... The answer is that modern finance is steeped in the notion that markets are ever efficient, meaning correctly priced, and scholars who have based their careers on this doctrine see the existence of bubbles as a threat. As Mr. Chancellor superbly shows, it is all to human to nurture a delusion, especially when one has company. The professors, at least, should know about that.|
|Clason, George S., 1955, c1926, The Richest Man in Babylon. New York: Penguin Books USA. The classic "Babylonian parables" that reveal the truths about acquiring money, keeping money, and making money earn more money, including "Seven Cures for a Lean Purse", "The Five Laws of Gold", and eight others.|
|Cunningham, Lawrence A., 1997, The Essays of Warren Buffett : Lessons for Corporate America. New York: Cardozo Law Review. selected, arranged, and introduced by Lawrence A. Cunningham. Includes bibliographical references and index. A compilation of "Letters to Shareholders" appearing in the annual reports of Berkshire Hathaway Inc. These letters are available free at the Berkshire Hathaway home page (see the listing for Warren E. Buffett).|
|Amazon.com ISBN 047111927X||Fisher, Philip A., 1996, Common Stocks and Uncommon Profits and Other Writings by Philip A. Fisher. New York: Wiley & Sons. Includes fifteen points to look for in a stock and the "scuttlebutt" method of investigation with emphasis on the investor's "sphere of competence" and companies of outstanding quality. Part One Common Stocks and Uncommon Profits (c1958): Chapter 1. Clues from the Past, Chapter 2. What "Scuttlebutt" can Do, Chapter 3. What to Buy -- The Fifteen Points to Look For in a Common Stock; Part Two Conservative Investors Sleep Well (c1975),: Chapter 1. The First Dimension, Chapter 2. The Second Dimension, Chapter 3. The Third Dimension, Chapter 4. The Fourth Dimension; Part Three Developing an Investment Philosophy (c1980): Conclusion, with investment philosophy summarized in eight points; and Appendix: Key Factors in Evaluating Promising Firms, Functional Factors, People Factors, Business Characteristics.|
|Amazon.com ISBN 0060155477||Graham, Benjamin, 1985, The Intelligent Investor : A Book of Practical Counsel, 4th revised edition. New York: Harper & Row. This edition includes an Appendix containing "The Superinvestors of Graham-and-Doddsville" by Warren E. Buffett who reportedly declined the invitation to be co-author of the book because it had strayed too far from the original principles espoused in Graham and Dodd's 1st edition of Security Analysis. As Roger Lowenstein reports: "In a field that was filled with narrow minds, Graham was also classical scholar ..." and "Having racked up the only A+ that Graham had awarded in twenty-two years at Columbia, Buffett made what seemed an irresistable offer: to work for Graham-Newman for free." This was during an earlier era when grades in U.S. graduate schools generally were based on merit and not on political correctness. The title emphasizes the actor (investor) and not the action (investing) or the object of activity (investments). The title also emphasizes intelligence, the single most important attribute of an investor for rational action and rational choice. As the main title implies, this book is intended for investors with sufficient intelligence to understand the crucial role of intellectual capacity in making investment decisions. As the sub-title indicates, the book does not provide the theoretical principles that constitute the foundation for investing based on the margin of safety between intrinsic value (appraised value) and market price quotation. Rather, it provides investment principles (margin of safety), policies, positive programs, and practical criteria to help investors identify sound investment opportunities. This book is a light version of the 4th edition of Security Analysis for serious non-professionals. Yet it omits the discussions of intrinsic value and includes discussions of growth investing. Growth was not a subject in the 1st edition of Security Analysis. Those portions on growth for the sake of growth can be ignored by intrinsic value investors.|
|Amazon.com ISBN 0070244960||Graham, Benjamin and David L. Dodd, reprint 1996, c1934, Security Analysis, 1st edition. New York: Whittlesey House/McGraw-Hill. This is not a book on theory, but a set of rules of thumb. The original 1934 "classic" edition does not emphasize the g-word, and "growth" does not appear in the index. Now in its 5th edition. For the differences between the 1st edition and the 4th or "modern" edition, go to compare them. This is considered by some to be the "bible" of professional security analysts. Its saving grace is that the kinds of stocks it recommends for purchase and for sale have a high correlation with the recommendations based on the classic investment theory of John Burr Williams.|
|Amazon.com ISBN 0070132356||Graham, Benjamin, David L. Dodd, Roger F. Murray, Frank E. Block, and Sidney Cottle, 1988, Graham and Dodd's Security Analysis : Principles and Technique, 5th edition. New York: McGraw-Hill. This is not a book on theory, but a set of rules of thumb. The term "growth" appears extensively in the index. Now in its 5th edition.The fourth edition is the last edition to include Graham and Dodd as authors. For the differences between the 4th edition and the 1st or "classic" edition, go to compare them. Each successive edition drifted farther from the original strict rules of stock selection. The increasing emphasis on growth mirrored the times.|
|Amazon.com ISBN 0887309135||Graham, Benjamin, Spencer B. Meredith, and Michael F. Price (Introduction), 1998, The Interpretation of Financial Statements : The Classic 1937 Edition. New York: Harper. Stresses the importance of financial literacy and numeracy.|
|Amazon.com ISBN 0471132985||Hagstrom, Robert G., Jr., 1995, The Warren Buffett Way : Investment Strategies of the World's Greatest Investor. Contains examples of the calculation of intrinsic economic value.|
|Lippmann, Walter, c1922, 1997, Public Opinion, Simon & Schuster Free Press. Stock market prices are an example of public opinion. Valuations of those same common stocks are a matter of private opinion, sometimes expertly informed. For excerpts, go to Truth v1.0.|
|Amazon.com ISBN 0385484917||Lowenstein, Roger, 1995, Buffett : The Making of an American Capitalist. New York: Random House. Is Warren Buffett always right about investing? No. Is Warren Buffett an investment guru? No? Warren Buffett is the most successful, and thus the most prominent, practitioner of value investing. Bill Sharpe of Stanford University reportedly remarked: "Buffett is a five-sigma event." If so, then his IQ would be about 175, at the upper end of most standard IQ tests. Investment choices demonstrate the concept of a circle of competence.|
|Amazon.com ISBN 0471119784||Schwed, Fred, Jr., 1995, c1940, Where are the Customers Yachts? or, A Good Hard Look at Wall Street. New York: John Wiley & Sons.|
|a library||Seligman, Daniel, 1983, "Can You Beat the Stock Market?" in Fortune magazine (26 December 1983):82-96. Mentions particular investment managers who are true value investors.|
|Amazon.com ISBN 0961772905||Welles, James F., 1997, Understanding Stupidity : An Analysis of the Unnatural Selection of Ideas, Beliefs and Behavior in Institutions and Organizations. Orient, NY: Mount Pleasant Press. Defines stupidity not as the opposite of intelligence but as a complementary human attribute.|
|Amazon.com ISBN 0471162922||Whitman, Martin J., 1999, Value Investing : A Balanced Approach. New York: Wiley & Sons. An in-depth look at valuing companies, this book is an attack on academic financial theories. It shows investors how to use the same valuation techniques as are used in private business and by investors in the market for corporate control. It replaces market-driven price watching with a balanced financial-data-driven approach to company analysis. After defining what exactly value investing is in this context, the author compares it with other approaches to the investment process, including academic finance, Graham & Dodd fundamentalism, and conventional securities research "as it seems to be practiced by most, 'sell' side analysts employed by broker/dealer research departments as well as by most 'buy' side analysts who manage money."|
|Amazon.com ISBN 087034126X||Williams, John Burr, 1997 reprint
(softcover), The Theory of Investment Value.
Burlington, Vermont: Fraser Publishing. Cambridge:
Harvard University Press, c1938. Amsterdam: North-Holland
Publishing Company,1995 reprint (hardback and softcover).
This well-written classic is the only authoritative book
on what came to be known as the Dividend Discount Model
which uses discounted cash flow techniques to estimate
investment value. It is required reading for
any serious intrinsic value investor. It should be read
carefully from cover to cover. It is a touchstone by
which all statements pertaining to intrinsic valuation
can be judged.
. . The most authoritative book on investment valuation.
The Theory of Investment Value is the only known book about the theory and practice of true, pure, intrinsic value investing. True value refers to long-run economic value as opposed to accounting or market value. Pure value refers to the absence of fallacious accretions such as market timing and beta coefficients. Intrinsic value refers to future cash flows generated by a company for its stockholders discounted to present value. Book I "Investment Value and Market Price" contains the basic principles and concepts of investment value theory. Book II "Case Studies in Investment Value" contains case studies in the application of this theory to the practical valuation of stocks. The cases are timeless in method even though dated in specific data.
The Theory of Investment Value still remains the most authoritative statement on both the theory and the practice of appraising the intrinsic economic value of investments. The theory states that the intrinsic ultimate long-term worth of a common stock is the present value of the discounted future net cash flows attributable to the common stock in the form of dividend distributions and future selling price. Page 191: "Is not one cause of the past volatility of stocks the lack of a sound Theory of Investment Value? Since this volatility of stocks helps in turn to make the business cycle itself more severe, may not advances in Investment Analysis prove a real help in reducing the damage done by the cycle?"
See theory for biographical sketch as well as the Preface and Contents of this investment classic. It is unfortunate that John Burr Williams did not receive a Nobel Prize in Economic Science for his monumental contributions to economic theory.
|Amazon.com ISBN 0870341316||Williams, John Burr, 1998 (softcover), Interest, Growth and Inflation: The Contractual Savings Theory of Interest. Burlington, Vermont: Fraser Publishing. The chapter on the stock market explains how stock prices are made partly by truth, partly by myth and partly by forces purely mechanical. The greatest single risk to long-term investors is inflation.|
|book search or a library||Williams, John
Burr, 1979,out-of-print, Fifty Years
of Investment Analysis : A Retrospective. Charlottesville, VA: University of Virginia,
Financial Analysts Research Foundation (now part of the
Association for Investment Management and Research,
1-800-247-8132). [ vi, 47 pages, preface,
bibliography, soft cover, 9x6, 27-page photostat copy;
Call Number: HG4529.W54; Library of Congress Call Number:
81-139836 r97; ISBN: n/a]. This is the personal memoirs
of Dr. Williams. Page 34: "To choose the right
stocks to study seems to be much harder than to reach the
right answer afterwards." Page 35: "As usual, I
asked for no inside information but only sought to learn
about the economics of the business, acquiring facts that
were well known to everyone in the industry. All I did
was make my own interpretation of the facts." Page
47: "In short, they need to be first-rate economists
if they hope to be top-flight security analysts."
John Burr Williams began his career as a security analyst in a prominent Boston financial firm. He became a financial expert while working successfully on his own account. He was motivated by a need to understand the world around him in terms of general principles and studied economic theory. Scholarly work occupied much of his time and energy. His first book, The Theory of Investment Value, based on his Ph.D. thesis and first published by the Harvard University Press, is regarded as a classic.
Copyright © 1996-2003. Numeraire.com. All rights reserved.