The Business of Value Investing: Six Essential Elements to Buying Companies Like Warren Buffett

by Sham M. Gad

• ISBN13: 9780470553855
• ISBN10: 0470553855
• Format: eBook
• Copyright: 2009-10-01
• Publisher: Wiley

Summary

A blueprint to successful value investingSuccessful value investors have an ingrained mental framework through which all investments decisions are made. This framework, which stems from the father of value investing, Benjamin Graham-who believed that investment is most intelligent when it is most businesslike-can put you in a better position to improve the overall performance of your portfolio.Written by Sham Gad-founder of the Gad Partners Funds, a value-focused investment partnership inspired by the 1950s Buffett Partnerships-The Business of Value Investing effectively examines the fundamental tenants of this approach and skillfully illustrates the six essential elements of the entire process. Opening with some informative discussions of how value investing focuses more on buying a piece of a business, and less on buying a company's stock, this reliable resource quickly moves on to detail exactly what it takes to become a successful value investor. Outlines the six essential elements required for a successful risk averse value investment approach Contains case studies that illustrate how to approach investing in an intelligent, businesslike fashion Walks you through the pitfalls that most investors initially fall intoWith The Business of Value Investing as your guide, you'll quickly become familiar with one of the most effective investment strategies ever created.

Table of Contents

Acknowledgments

Introduction

Invest in the Business, Buy the Stock

Stock Prices are More Noise than Information

A Businesslike Approach to Valuing the Business

The Making of a Legend

A Simple Idea, Really

The Only Three Types of Investments You Need to Know

Stocks Prices Aren't Always Rational

The Business Side of Investing

Three Buckets: Undervalued, Overvalued, and Fairly Valued

Price Determines Value

Key Takeaways

The Six Elements of Intelligent Investing

All Investing is Value Investing

Learn From the Masters

The Sum of Its Parts: A Fundamental Framework

A Mental Latticework

Overview of the Six Elements

Emphasize the Process, Not the Outcome

Key Takeaways

Establish a Sound Investment Philosophy

The First Element

Preservation of Capital is the Name of the Game

Price Paid Determines Value Received

The Starting Point Matters

Avoid Using Margin

Focus on Absolute Returns

Key Takeaways

Develop a Search Strategy

The Second Element

Ignore the Media

Imitation is Sincerest Form of Flattery

Basic Search Strategies

Advanced Search Strategy

Key Takeaways

Effective Business Valuation

The Third Element

Value Investing 101: Margin of Safety

Value Investing 201: Intrinsic Value

Value Investing 301: Seek Businesses with a Wide Moat

Value Investing 401: Calculating a True Intrinsic Value

The Value of Management

Understanding Return on Equity: Microsoft Corporation

Key Takeaways

Have the Discipline to Say No

The Fourth Element

In Investing, Discipline is Everything

Discipline Affects the Price Paid Which Determines the Value You Get

Be Prepared to Look Stupid

Don't Split Hairs

Unveiling Investor A: Warren Buffett

Discipline is Simple, but Rarely Easy

Key Takeaways

Practicing the Art of Patience

The Fifth Element

Swimming Against the Current

The Benefits of Waiting for a Good Pitch

Ignorance Can Be Bliss

The Benefits of a Buy and Hold Approach

Conservative Tests of Safety a Must

Key Takeaways

Invest Significantly at the Maximum Point of Pessimism

The Sixth Element

Putting It All Together

Pessimism Leads to Value

Avoid that Which Is Most Valuable

Remain Flexible in the Approach

All or Nothing

Key Takeaways

More Than One Way to Find Value

Case Studies Showing the Approach at Work

A Reminder: Process First, Outcome Second

Case Study #1: Finding Value in an Unloved Industry

Sunrise Senior Living (SRZ)

Case Study #2: Money Machine South of the Border

Ternium Steel

Case Study #3: A Tale of Two Shares

Mueller Water Products

Fertile Hunting Ground

Conclusion

Key Takeaways

Avoiding Common Stumbling Blocks

Growth and Value: Two Sides of the Same Coin

Book Value: More Than Meets the Eye

What Matters Most

Key Takeaways

Starting an Investment Partnership

Two Key Considerations

Service Providers

Quality Matters Most.

Notes

About the Author

Index

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