Rating: 
Summary: Strongly Recommend!
Review: "Expectations Investing" presents a powerful idea - From a company's stock price, derive what the market is expecting of the company's performance. Then, based on your own expectations, decide if the stock is a worthy investment. One might say, isn't this what investors do all the time, using multiples like P/E? The book talks about the drawback of such multiples. Then it presents a clear and elegant framework to identify the true drivers of a company's value. You need to perform a strategic analysis of the company and industry to identify the plausible ranges for these value drivers. You can see where your assumptions stand with respect to market expectations (which you reverse engineer from the stock price and consensus estimates for future performance). You assign probabilities to various outcomes based on your convictions, and decide to buy/sell.In 195 pages, this book presents a bunch of insights. The presentation on valuing a company's stock options, as well as discussion of value capture by buyers/sellers in mergers and acquisitions, are the clearest I've seen in any finance/valuation book. The discussions on incentive compensation, as well as management signals in share buybacks, are also quite impressive and accessible to the general reader. The accompanying website for this book is highly complementary, and presents excel models for all topics covered. I adapted them for a sample company and was quite delighted! While DCF valuations are not every investor's cup of tea, this book goes the farthest in trying to make its DCF-based framework manageable by the average person. Now for the caveats which I hope are minor - A couple of earlier chapters pack the gist of several MBA classes (corporate finance, strategy, behavioral finance). If you are not an MBA, the profoundness of the ideas might be lost on you in the rat-a-tat-a-tat rapid fire presentation. Also, you will appreciate this book better if you have some conceptual understanding of corporate finance, such as cost of capital issues.
Rating:
Summary: Strongly Recommend!
Review: "Expectations Investing" presents a powerful idea - From a company's stock price, derive what the market is expecting of the company's performance. Then, based on your own expectations, decide if the stock is a worthy investment. One might say, isn't this what investors do all the time, using multiples like P/E? The book talks about the drawback of such multiples. Then it presents a clear and elegant framework to identify the true drivers of a company's value. You need to perform a strategic analysis of the company and industry to identify the plausible ranges for these value drivers. You can see where your assumptions stand with respect to market expectations (which you reverse engineer from the stock price and consensus estimates for future performance). You assign probabilities to various outcomes based on your convictions, and decide to buy/sell. In 195 pages, this book presents a bunch of insights. The presentation on valuing a company's stock options, as well as discussion of value capture by buyers/sellers in mergers and acquisitions, are the clearest I've seen in any finance/valuation book. The discussions on incentive compensation, as well as management signals in share buybacks, are also quite impressive and accessible to the general reader. The accompanying website for this book is highly complementary, and presents excel models for all topics covered. I adapted them for a sample company and was quite delighted! While DCF valuations are not every investor's cup of tea, this book goes the farthest in trying to make its DCF-based framework manageable by the average person. Now for the caveats which I hope are minor - A couple of earlier chapters pack the gist of several MBA classes (corporate finance, strategy, behavioral finance). If you are not an MBA, the profoundness of the ideas might be lost on you in the rat-a-tat-a-tat rapid fire presentation. Also, you will appreciate this book better if you have some conceptual understanding of corporate finance, such as cost of capital issues.
Rating: 
Summary: Recommended by Enron!
Review: An observation by Peter L. Bernstein that the "fundamental law of investing is the uncertainty of the future" sets up the dilemma undertood by all investors grappling with risk in pursuit of gain. This book starts with the assumption that stock prices represent the market's expectations about a company's future performance. There are "price implied expectations" (PIE) embodied in the price of a stock. Defining the "value drivers" of these expectations, understanding how they contribute to a company's success, and anticipating revisions in their assessed effectiveness for a particular company are critical steps in this investment approach. Determining the PIE for a particular stock from publicly available information involves a range of estimates and a need to understand the industry sector. What we have here is an artful process for estimating value not fail safe equations. This is a challenging book on a number of fronts: Stock prices, we are told, only "tenuously" relate to earnings growth. Rather "changes in expectations about future cash flows" are the key, and earnings and shareholder value may not move together. On the other hand, the notion that a stock price can be deconstructed to establish the expectations investors have for its future seems intuitively clear. This reader would have been more persuaded of the usefulness of this analytical approach with more case studies where the ideas are comprehensively applied. Separate chapters dealing with acquisitions, stock buybacks, and employee stock options - each of which when properly interpreted can modify an investor's expectations - are especially insightful.
Rating:
Summary: Must Reading
Review: In an investment world filled with tinsel and glitter, Rappaport and Mauboussin have given us substance and common sense. Using the invaluable information imbedded in the price of a stock to establish the market's expectations,the authors present a (fairly) simple methodology for assessing the valididity of those expectations, and to invest accordingly, It is, as Peter Bernstein says in his brilliant foreword (an absolute must- read before you plunge into the text), "a logical path to the heart of value."
I'm pleased to have give the book an earlier endorsement, because I hope that mutual fund managers will learn from "Expectations Investing" that there are far better ways to manage money--ways to focus on "value" whether their style is value or growth--than the costly, high-turnover, momentum-driven strategies that are rife in the industry today.
More than ever after the 35% fall in the stock market since March 2000, investors need wisdom. They'll find it here.
Rating:
Summary: Not as good as it should have been, but worth to be read
Review: La récente débâcle boursière a laissé la plupart des actionnaires non seulement appauvris, mais aussi désemparés face aux révisions brutales de cours d'entreprises prestigieuses (Lucent, Alcatel, Xerox, Enron, ...).
Expectations Investing donne une explication claire à ce phénomène. Pour reprendre l'expression utilisée par Berstein dans la préface de l'ouvrage, les actionnaires ont eu davantage recours à leurs oreilles qu'à leurs yeux pour renseigner leurs cerveaux. L'avidité et le goût pour l'argent facile, leur ont fait oublier les bienfaits de l'analyse fondamentale.
Mais les auteurs ne recommandent pas la démarche d'analyse conventionnelle qui consiste à estimer d'abord la valeur intrinsèque d'une entreprise puis à la comparer à sa valeur boursière avant de prendre une décision d'investissement.
Ils proposent de partir du cours de bourse actuel, d'identifier, grâce aux analyses financières disponibles, les hypothèses implicites qui y sont contenues, d'en faire l'examen stratégique afin de déterminer la probabilité de leur révision, et de prendre une décision en fonction de cette analyse.
Cette démarche logique, mais trop rarement utilisée, met en œuvre des outils très classiques : les cash flows actualisés dont l'approche avait été vulgarisée par d'Alfred Rappaport dans son livre « Creating Shareholder Value », les outils d'analyse stratégiques développées par Porter, Christensen ou Shapiro. D'autres approches sont plus récentes comme celle des options réelles, largement diffusées dans les milieux financiers par Michael Mauboussin, responsable de la recherche financière du CSFB.
Séduisante, et apparemment facile à mettre en œuvre, cette méthode se heurte cependant à un obstacle important : celui de la fiabilité des analyses financières qui en constituent son point de départ. En juillet 2000, sur les 33169 recommandations faites par les 2200 analystes sur 6000 entreprises cotées aux Etats Unis, seulement 125 étaient des recommandations de vente (soit 0,37% !). Il est donc difficile de penser que le consensus des analystes financiers reflète les hypothèses du marché financier.
Aujourd'hui, ce livre est donc peu utilisable par l'investisseur. Cependant, cette situation n'est que temporaire. En effet, le fonctionnement des marchés financiers est en train de connaître une mutation déterminante grâce à l'amélioration constante de l'information financière. Réglementation et progrès techniques se conjuguent pour rendre les entreprises plus transparentes, et les analystes financiers plus professionnels.
La réglementation comptable est en train de changer considérablement tant aux Etats Unis qu'en Europe. Les tendances lourdes sont les suivantes : informer la communauté financière sans discrimination, plus fréquemment, et surtout de manière plus pertinente (information plus détaillée, plus opérationnelle, privilégiant les valeurs de marché et comportant des éléments non financiers pour mettre en perspective les données purement comptables).
Deux exemples de communication financière montrent la voie. Sur son site, Microsoft propose à ses actionnaires des outils de simulation pour leur permettre de juger par eux-mêmes des perspectives d'avenir de l'entreprise. Par ailleurs, en réaction à la pratique d'« earning guidance », USA Networks a tout récemment déclaré qu'à l'avenir, il rendrait public ses budgets internes, considérant qu'il faut mieux « gérer l'entreprise que gérer la Bourse ».
Sur le plan technologique, grâce à Internet, l'information financière est à présent accessible à tous les investisseurs, pour un coût très faible. Les entreprises peuvent s'adresser directement à leurs actionnaires et n'ont plus besoin du filtre des analystes financiers. Face à cette désintermédiation, et confrontés à une grave crise de confiance qui suscite de nombreuses initiatives (procès, code de déontologie ...), les analystes ne pourront que retrouver leur indépendance et leur professionnalisme, pour le plus grand bien des investisseurs. Cela permettra à ces derniers de se servir, enfin, de l'ouvrage Expectations Investing !
Rating: 
Summary: This is *not* a quant/behavioral finance book....
Review: Mauboussin was far and away the best professor I had at Columbia Business School. His security analysis course is consistently rated tops by second year students at CBS and I recommend it to every student I come in contact with. He is insightful, knowledgeable and a master of security analysis. This book allows the general public the opportunity to learn Mauboussin's thoughts without the rigorous admissions process and $30,000 per year price tag of CBS. I have worked at Gabelli & Co. as an analyst for Mario Gabelli and am currently an analyst at a bulge bracket firm in New York. I attribute my success to a few people along the way and Mauboussin ranks right up at the top. Bottom line: Outstanding Work.
Rating:
Summary: Excellent read
Review: Rappaport and Mauboussin expertly utilize the often misapplied DCF model to identify and analyze market assumptions that determine stock price. In the age of irrational exuberance, the disparity between market value and intrinsic value is often dismissed as the product of a fickle and unpredictable market. Rappaport and Mauboussin, however, remind us that the market is indeed rational in the long term and changes in stock prices are the result of changes in market expectations. The "Expections Investing" methodology helps investors to understand current expectations and anticipate expectation revisions. A financial model is only as good the assumptions behind it. The forecasting process invariably reflects the assuptions of the analyst, which tend to be biased by experience and preconception. "Expections Investing" teaches investors to avoid predilection by reverse engineering DCF models from stock prices, allowing them generate figures that reflect market assumptions rather than their own. This value-agnostic process produces greater accuracy in many areas that are frequently overlooked. Rappaport and Mauboussin expose the fallacious nature of models based on forecast periods and discount rates that are assigned in an arbitrary fashion. They correctly state that the finger-in-the-wind approach is not sufficient and can greatly distort the final analysis. "Expectations Investing" also highlights topics (i.e., valuation of employee stock options) of which the significance is often underestimated or ignored in traditional valuation analysis.
Rating:
Summary: A Different Approach
Review: Stock market investing books usually come in two flavors. The first group of authors tell you to look for certain price and volume patterns; that the stock price depends on those patterns because those patterns are a reflection on human behavior. The second group of authors tell you to look for certain ratios in the financial statements; that the stock price depends on those ratios. Then there's this book, which tells you that the price could depend on a lot of things, like mergers and acquisitions and the synergy they generate, executive compensation, competitive strategies, stock buybacks, etc. But they don't tell you how to calculate those factors into the stock price. The book is a good book which certainly provokes thought. And it's probably good for finding stocks for the long term investor. But for me, it's a little too impractical. And a little too academic intellectual guru voodoo. When I have money at risk, and I have to make quick decisions (which can affect my net worth), I like to keep things simple and easily measurable which technical and fundamental analysis allows me to do.
Rating:
Summary: An investor's guide on how to approach the investing process
Review: This book is a must read for anyone that invests in the market and wants to make consistent gains in his/her portfolio. Most people spend more time planning a vacation than they do in picking the stocks in their portfolios. And even when they do some research into a stock usually it constitutes asking their peers on what they think about company XYZ. And the people they solicit this advice from are just as ineffective in their research and knowledge about company XYZ. Mr. Mauboussin and Mr. Rappaport give investors the right tools to make careful and informed investing decisions. The authors suggest that the market prices "expectations" into a stock and a good investor needs to strip this from the analysis and find the true intrinsic value of a security. The is accomplished by various financial analysis tools presented in the book and also by a fundamental shift in investor thinking and perception.
Rating:
Summary: The Investing Bible
Review: totally agree with one of the reviewers that this book hasn't made valuation any easier, or more accurate, it's good in its review of the various value drivers and competitive forces, but that's nothing new about such review, not to say ground breaking, if this book contains 100 empirical studies of how well the methods it advocates help to pick stocks, then it would deserve to be called a "treatise" or ground breaking, but all it has is just one case study (gateway) which does not seem to be particularly illuminating, all in all this book is not bad but just not what it claims to be
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