Getting Started in Value Investing E-Book

Charles Mizrahi

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: The Getting Started In Series
• Sprache: Englisch

Seitenzahl: 312

Veröffentlichungsjahr: 2011

Beschreibung

An accessible introduction to the proven method of value investing An ardent follower of Warren Buffett-the most high-profile value investor today-author Charles Mizrahi has long believed in the power of this proven approach. Now, with Getting Started in Value Investing, Mizrahi breaks down this successful strategy so that anyone can learn how to use it in his or her own investment endeavors. Written in a straightforward and accessible style, this book helps readers gain an overall understanding of the value approach to investing and presents statistics that reveal the overwhelming success of this approach through a variety of markets. Engaging and informative, Getting Started in Value Investing skillfully shows readers how to look for undervalued companies and provides them with the tools they need to succeed in today's markets. Charles S. Mizrahi (Brooklyn, NY) is Managing Partner of CGM Partners Fund LP. He is also editor of Hidden Values Alert, a monthly newsletter focused on value investing. Mizrahi has more than 25 years of investment experience and is frequently quoted in the press. Many of his articles appear online at gurufocus.com as well as on other financial sites.

Leseprobe

Table of Contents

The Getting Started In Series

Title Page

Copyright Page

Dedication

Acknowledgments

Introduction

The Miracle of Turning Clear Water into Mud

The Stock Market at the Turn of the Twentieth Century

Dawn of a New Way of Thinking

Old Habits Die Hard

What You Find in This Book

Words to Live By

Chapter 1 - The 5 Misconceptions of Value Investing

Top-Down Approach vs. Bottom-Up Approach

Top-Down Approach

Bottom-Up Approach

The Easier Game

Common Misconceptions about Value Investing

Chapter 2 - The Basics of Value Investing: A Few Things You Must Know

Efficient Market Theory

The Really Smart Money

Following the Crowd

Sticking to Their Principles

Avoiding the Meltdown

Evolution

Short-Term Time Horizon

Market Cap Limitations

Your Edge

Chapter 3 - Market Caveats: Lessons from the Past

Three Things to Keep in Mind

The Richest Man in the World

Understanding Your Investments

The Dynamic Duo

Easy to Understand

Consistent and Predictable Operating History

Take the Challenge

Chapter 4 - Are Great Companies Great Investments?

Great Companies Are Too Efficiently Priced

Looking for the 10 Bagger

The Financials Get No Respect

Are Great Companies Great Investments?

Cigar Butts and Aircraft Carriers

Quality Businesses

Load Up and Hold ’Em

Chapter 5 - Who’s in Charge? Management Counts

Proxy Statement

Phil Purcell, CEO—Morgan Stanley

Bill Butler, President—Aaron’s Sales & Lease Ownership Division

Leonard Schaeffer, Former Chairman and CEO—WellPoint, Inc.

Bob Kierlin, Former CEO and Co-Founder—Fastenal Company

Alan C. “Ace” Greenberg, Former Chairman—The Bear Stearns Companies, Inc.

Sam Walton, Founder—Wal-Mart Stores

Thirty Minutes!

What to Look for in a Manager

Is Management Rational? How Do They Allocate Capital?

The Annual Report

Management’s Discussion

Chapter 6 - Competition: Threat or Opportunity?

The Moat

Types of Moats

The Numbers Speak

Return on Equity (ROE)

Net Profit Margin (NPM)

Competitive Advantages Are Not Forever

Conclusion

Chapter 7 - The Essential Valuation Variables that Really Count

Back of the Book

Consolidated Statement of Income

Balance Sheet

Statement of Cash Flows

Chapter 8 - The Essential Operating Variables that Really Count

Operating Margin

Net Profit Margin

Return on Equity (ROE)

A Checklist

Free Cash Flow As a percent of Revenue

Chapter 9 - The Price of Stock versus the Value of the Company

Lower Prices

Straw Hats in the Winter

Stock Frustrations

Take Me Out to the—Mania

Price Matters

A Tale of Two Companies

How to Determine a Fair Price

Looking Backward: Graham and Dodd

A Simple Approach to Valuation

A Simple Approach

Why Stocks Trade at a Discount

It’s the Structure

Opportunity for the Rest of Us

Chapter 10 - Your Own Worst Enemy

Periods of Disappointment

Back to Baseball

Stay the Course

What Do You Need?

Chapter 11 - My Final Words of Value

Read the Annual Reports

Principles That Have Stood the Test of Time

Invest in Companies with Consistent and Predictable Earnings

Stick with Quality

Go Large Caps

Able Leaders

Competitive Advantage

The Right Price to Pay

The Right Temperament

Have Patience

Common Sense

Conclusion

Glossary

Recommended Reading and Resources

Notes

Index

TheGetting Started InSeries

Getting Started in Online Day Trading by Kassandra Bentley

Getting Started in Investment Clu²bs by Marsha Bertrand

Getting Started in Asset Allocation by Bill Bresnan and Eric P. Gelb

Getting Started in Online Investing by David L. Brown and Kassandra Bentley

Getting Started in Online Brokers by Kristine DeForge

Getting Started in Internet Auctions by Alan Elliott

Getting Started in Stocks by Alvin D. Hall

Getting Started in Mutual Funds by Alvin D. Hall

Getting Started in Estate Planning by Kerry Hannon

Getting Started in Online Personal Finance by Brad Hill

Getting Started in 401(k) Investing by Paul Katzeff

Getting Started in Internet Investing by Paul Katzeff

Getting Started in Security Analysis by Peter J. Klein

Getting Started in Global Investing by Robert P. Kreitler

Getting Started in Futures by Todd Lofton

Getting Started in Project Management by Paula Martin and Karen Tate

Getting Started in Financial Information by Daniel Moreau and Tracey Longo

Getting Started in Emerging Markets by Christopher Poillon

Getting Started in Technical Analysis by Jack D. Schwager

Getting Started in Hedge Funds by Daniel A. Strachman

Getting Started in Options by Michael C. Thomsett

Getting Started in Six Sigma by Michael C. Thomsett

Getting Started in Real Estate Investing by Michael C. Thomsett and Jean Freestone Thomsett

Getting Started in Tax-Savvy Investing by Andrew Westham and Don Korn

Getting Started in Annuities by Gordon M. Williamson

Getting Started in Bonds by Sharon Saltzgiver Wright

Getting Started in Retirement Planning by Ronald M. Yolles and Murray Yolles

Getting Started in Currency Trading by Michael D. Archer and Jim L. Bickford

Getting Started in Rental Income by Michael C. Thomsett

Getting Started in Exchange Traded Funds by Todd Lofton

Getting Started in Fundamental Analysis by Michael C. Thomsett

Getting Started in REITS by Richard Imperiale

Getting Started in Swing Trading by Michael C. Thomsett

Getting Started in Property Flipping by Michael C. Thomsett

Copyright © 2008 by Charles S. Mizrahi. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. Wiley Bicentennial Logo: Richard J. Pacifico

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at [phone], outside the United States at [phone] or fax [phone].

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com.

Library of Congress Cataloging-in-Publication Data:Mizrahi, Charles, 1962-

Getting started in value investing / Charles Mizrahi. p. cm. - (The getting started in series) Includes bibliographical references (p.) and index.

ISBN 978-0-470-13908-0 (pbk.)

1. Stocks 2. Value investing I. Title. HG4661.M567 2008 332.63’22-dc22

2007013690

In memory of my grandfatherLouis A. Baskin who added value to everything he touched

Acknowledgments

I am grateful to my friends and colleagues for their careful reading of the manuscript. Their critiques greatly improved the content. I am especially indebted to Raymond A. Gindi, Ira L. Horowitz, and Dr. Cesar “Bud” Labitan. Dr. John Price greatly shaped my thinking on how to determine intrinsic value and the importance of factoring in a margin of safety.

Words of encouragement and support—offered to me by two people I have the highest respect for, Donald Yacktman and Rabbi Joseph Telushkin—came at a time they were needed most.

I would like to thank my editor at John Wiley & Sons, Debra Englander, for agreeing to publish my manuscript and guiding me through every step of the publishing process. Michael C. Thomsett, an author of over 60 books, provided me guidance, suggestions, and his vast expertise. I was fortunate to have such a capable team behind me.

I owe an enormous debt of gratitude to Warren E. Buffett. Like his teacher Benjamin Graham before him, Mr. Buffett has continued the tradition of passing on an investment philosophy to all those who will listen. His life is an example of what happens when wisdom, ethics, and benevolence converge.

In addition to allowing me to marry their only daughter (for which they have my eternal gratitude), my in-laws, Richard and Sallie Mishaan, have been a constant source of encouragement and inspiration.

While growing up, my parents, Billy and Janice Mizrahi, provided me with an environment that allowed me to develop my love of learning and reading. They gave my brothers and me total freedom to find our own way in life while gently guiding us from the wings. I hope I can have the same faith in my children that they had in us.

For over a quarter century, my brother Gary Mizrahi has been my partner, confidant, most outspoken critic, and friend. The great businessman William Wrigley once said, “When two men in a business always agree, one of them is unnecessary.” Our relationship is one in which we bring our own viewpoints and strengths to the table, and it has made working together both a challenging and a rewarding journey.

I have been blessed with the greatest children a father could ask for: Janice, Billy, Ritchie, Jeffrey, and Steven. I pray that you always keep in mind “what the Lord requires of you: only to do justice, and to love goodness and to walk modestly with your God, then will your name achieve wisdom” (Micah 6:8).

I owe the deepest gratitude of all to my wife Ellen, a true woman of valor. “Many women have done well, but you surpass them all” (Proverbs 31:29).

I couldn’t agree more with Sir Isaac Newton, who said, “If I have been able to see further, it was only because I stood on the shoulders of giants.” I have been very fortunate to be able to learn so much from so many. It is now my turn to pass it on.

Introduction

Value Really Means Something

I have seen no trend toward value investing in the 35 years I have practiced it. There seems to be some perverse human characteristic that likes to make easy things difficult.1

—Warren Buffett

“I just don’t have a head for investing, don’t waste your time,” my mother I told me. It was a cool fall afternoon and already starting to get dark when

Mom and I were sharing a pot of herbal tea. My mother always avoided the subject like the plague because to her investing and everything related to it was one big black hole. It was a place where information was likely to be siphoned away and never seen again. I couldn’t blame her. Since I was a teenager, she had always seen me with either a book in my hand or leafing through a company’s latest annual report—scribbling down notes and calculating numbers. Dad had always taken care of the family finances and still did. But I felt strongly that Mom should have some idea of how to manage money too.

After my further pleading, she told me that I could have two minutes; if she couldn’t grasp it by then, it would be the last she wanted to hear on the subject. Sitting at the kitchen table, I knew this was the only chance I would get and I couldn’t blow it. “Mom, how much do you pay for a half gallon of milk?”