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

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  • Edition: 1st
  • Format: Hardcover
  • Copyright: 2009-10-19
  • Publisher: Wiley
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Somewhat controversially, Gad makes the point that value and growth investing are much more similar than most investors think -- value investors look for growth in the companies in which they invest. He then walks readers through the pitfalls that most investors fall victim too -- most of which involve not really understanding the margin of safety and how it is applied. Gad sets the stage by presenting the core value framework for beginning to advanced investors and money managers. With the backdrop of evaluating businesses (and not stocks), The Business of Value Investing introduces a blueprint to successful value investing with a focus on six key Buffett strategies. These essential points are presented and backed up with real-world case studies.

Author Biography

Hesham M. Gad, an up-and-coming value investor, is the Managing Partner of the Gad Partners Funds. Prior to managing the Gad Partners Fund, he ran the Gad Investment Group from 2002 to 2005, a concentrated value fund that delivered annualized returns of 22 percent. He has written hundreds of investment articles and currently contributes to TheStreet.com and Investopedia.com. Gad holds an MBA in finance from the University of Georgia, during which time he met with Warren Buffett for lunch.

Table of Contents

Acknowledgmentsp. xiii
Introductionp. xvii
Invest in the Business, Buy the Stockp. 1
Stock Prices Are More Noise Than Informationp. 4
A Businesslike Approach to Valuing the Businessp. 6
The Making of a Legendp. 11
A Simple Idea, Reallyp. 14
The Only Three Types of Investments You Need to Knowp. 15
Stocks Prices Aren't Always Rationalp. 16
The Business Side of Investingp. 17
Three Buckets: Undervalued, Overvalued, and Fairly Valuedp. 21
Price Determines Valuep. 24
Key Takeawaysp. 31
The Six Elements of Intelligent Investingp. 33
All Investing Is Value Investingp. 35
Learn from the Mastersp. 38
The Sum of Its Parts: A Fundamental Frameworkp. 39
A Mental Latticeworkp. 42
Overview of the Six Elementsp. 43
Emphasize the Process, Not the Outcomep. 46
Key Takeawaysp. 46
Establish a Sound Investment Philosophy: The First Elementp. 47
Preservation of Capital Is the Name of the Gamep. 49
Price Paid Determines Value Receivedp. 52
The Starting Point Mattersp. 54
Avoid Using Marginp. 61
Focus on Absolute Returnsp. 64
Key Takeawaysp. 66
Develop a Search Strategy: The Second Elementp. 67
Ignore the Mediap. 69
Imitation Is the Sincerest Form of Flatteryp. 72
Basic Search Strategiesp. 75
Advanced Search Strategyp. 85
Key Takeawaysp. 89
Effective Business Valuation: The Third Elementp. 91
Value Investing 101: Margin of Safetyp. 92
Value Investing 201: Intrinsic Valuep. 95
Value Investing 301: Seek Businesses with a Wide Moatp. 101
Value Investing 401: Calculating a True Intrinsic Valuep. 106
The Value of Managementp. 111
Understanding Return on Equity: Microsoft Corporationp. 121
Key Takeawaysp. 124
Have the Discipline to Say No: The Fourth Elementp. 125
In Investing, Discipline is Everythingp. 126
Discipline Affects the Price Paid, Which Determines the Value You Getp. 128
Be Prepared to Look Stupidp. 132
Don't Split Hairsp. 137
Unveiling Investor A: Warren Buffettp. 139
Discipline Is Simple but Rarely Easyp. 145
Key Takeawaysp. 146
Practicing the Art of Patience: The Fifth Elementp. 147
Swimming against the Currentp. 150
The Benefits of Waiting for a Good Pitchp. 151
Ignorance Can Be Blissp. 158
The Benefits of a Buy-and-Hold Approachp. 162
Conservative Tests of Safety a Mustp. 171
Key Takeawaysp. 172
Invest Significantly at the Maximum Point of Pessimism: The Sixth Elementp. 173
Putting It All Togetherp. 174
Pessimism Leads to Valuep. 179
Avoid That Which Is Most Valuablep. 181
Remain Flexible in the Approachp. 186
All or Nothingp. 192
Key Takeawaysp. 193
More Than One Way to Find Value Case Studies Showing the Approach at Workp. 195
A Remainder: Process First, Outcome Secondp. 197
Case Study #1: Finding Value in an Unloved Industry: Sunrise Senior Living (SRZ)p. 198
Case Study #2: Money Machine South of the Border: Ternium Steelp. 205
Case Study #3: A Tale of Two Shares Mueller Water Productsp. 214
Fertile Hunting Groundp. 216
Conclusionp. 219
Key Takeawaysp. 220
Avoiding Common Stumbling Blocksp. 221
Growth and Value: Two Sides of the Same Coinp. 225
Book Value: More Than Meets the Eyep. 232
What Matters Mostp. 240
Key Takeawaysp. 242
Starting an Investment Partnershipp. 243
Two Key Considerationsp. 244
Service Providersp. 245
Quality Matters Mostp. 247
Notesp. 249
About the Authorp. 253
Indexp. 255
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