Value Investing for Dummies

Rating:
Summary: Nothing Better--For Beginners
Review: After reading many books on Warren Buffett and, more broadly, on the subject of value investing, I still found myself a bit lacking in how to identify the true worth of a business. The reason for this was that many of the books assumed more than, in fact, I really knew.

(This is not to say that such books were of no value to me or won't be for you. It is simply stating the obvious: without a solid grounding in how to evaluate, and quantify, what any of the businesses I looked at were worth, I was strongly limited in my efforts of making good investment decisions. I was able to tell, for instance, that a company was competently run but not whether it would earn enough in the future to justify its current price. And that, as every rational investor will tell you, is key to achieving investment success.)

_Value Investing for Dummies_ assumed virtually nothing. Sure enough this meant much in the book was a review of what I had already learned from others (and might be for you too) but to my mind there's nothing wrong with relearning what is already known. (Better to do so with a book at least than with one's own money.) In assuming little-to-nothing of the reader, the authors give the reader all the tools he or she needs to invest profitably in the future.

Crucial to the dummy reader and, in this case, that means me, the book shows how to understand the _language_ of business: accounting. Since this is where the book shines, I'll pause here to allow the authors themselves a chance to explain what it is they're setting out to do. In Part 2 of the book titled "Fundamentals for Fundamentalists" the authors state their intentions as follows:

"We open the value investor toolbox by first engaging in a short exploration of investing mathematics . . . Next up is a discussion of information and information sources key to the value investor. Then, we dig in further with a tour of the financial statement landscape, including balance sheets, income statements, and cash flow statements. Ratios and ratio analysis are explored as a way to make more sense of these numbers. Finally, we help you to find and interpret non-numeric influences in the value equation."

In the next section, Part 3, the authors again state their intentions:

"We help you to assess or _appraise_ the value of a company and relate that value to the stock price. We examine some of the proven methods of business value asessment, including intrinsic value, book value, discounted cash flow, and the strategic profit formula. Then we sprinkle in a dash of intangibles (investors shouldn't live by numbers alone) and discuss buy and sell decisions. To bring these tools and techniques together into a system, we use none other than the full example of the master, Warren Buffett. Finally, to provide practice and reinforcement we present case studies of value, and for further reinforcement we resort to the age-old technique of showing opposites: examples of _un_value."

As a reader of the book, and now a reviewer, I have the duty to tell you that the authors have done exactly what they intended to do--and they have done it well. The style is such that even somewhat boring topics seem lively and the technique, as it is explained above and practiced throughout, simply can not be improved upon. The crystal-clear definitions of accounting terms and financial ratios, the detailed explanations showing what they mean and why they are important, the real-life example of Warren Buffett, and the case studies taking you all the way through the process step-by-step make this book truly the best place to start for anyone interested in investing.

Rating:
Summary: Nothing Better--For Beginners
Review: After reading many books on Warren Buffett and, more broadly, on the subject of value investing, I still found myself a bit lacking in how to identify the true worth of a business. The reason for this was that many of the books assumed more than, in fact, I really knew.

(This is not to say that such books were of no value to me or won't be for you. It is simply stating the obvious: without a solid grounding in how to evaluate, and quantify, what any of the businesses I looked at were worth, I was strongly limited in my efforts of making good investment decisions. I was able to tell, for instance, that a company was competently run but not whether it would earn enough in the future to justify its current price. And that, as every rational investor will tell you, is key to achieving investment success.)

_Value Investing for Dummies_ assumed virtually nothing. Sure enough this meant much in the book was a review of what I had already learned from others (and might be for you too) but to my mind there's nothing wrong with relearning what is already known. (Better to do so with a book at least than with one's own money.) In assuming little-to-nothing of the reader, the authors give the reader all the tools he or she needs to invest profitably in the future.

Crucial to the dummy reader and, in this case, that means me, the book shows how to understand the _language_ of business: accounting. Since this is where the book shines, I'll pause here to allow the authors themselves a chance to explain what it is they're setting out to do. In Part 2 of the book titled "Fundamentals for Fundamentalists" the authors state their intentions as follows:

"We open the value investor toolbox by first engaging in a short exploration of investing mathematics . . . Next up is a discussion of information and information sources key to the value investor. Then, we dig in further with a tour of the financial statement landscape, including balance sheets, income statements, and cash flow statements. Ratios and ratio analysis are explored as a way to make more sense of these numbers. Finally, we help you to find and interpret non-numeric influences in the value equation."

In the next section, Part 3, the authors again state their intentions:

"We help you to assess or _appraise_ the value of a company and relate that value to the stock price. We examine some of the proven methods of business value asessment, including intrinsic value, book value, discounted cash flow, and the strategic profit formula. Then we sprinkle in a dash of intangibles (investors shouldn't live by numbers alone) and discuss buy and sell decisions. To bring these tools and techniques together into a system, we use none other than the full example of the master, Warren Buffett. Finally, to provide practice and reinforcement we present case studies of value, and for further reinforcement we resort to the age-old technique of showing opposites: examples of _un_value."

As a reader of the book, and now a reviewer, I have the duty to tell you that the authors have done exactly what they intended to do--and they have done it well. The style is such that even somewhat boring topics seem lively and the technique, as it is explained above and practiced throughout, simply can not be improved upon. The crystal-clear definitions of accounting terms and financial ratios, the detailed explanations showing what they mean and why they are important, the real-life example of Warren Buffett, and the case studies taking you all the way through the process step-by-step make this book truly the best place to start for anyone interested in investing.