Wednesday, December 18, 2013

Faerber, All About Value Investing

I’m not sure why value investing has become such a popular topic. I have reviewed at least half a dozen books on value investing and, to the best of my recollection, not a single one on momentum investing. “Momentum” is a dirty word, associated with burst bubbles, even as it remains a popular strategy with many professional investors. By contrast, value, a concept with an impeccable pedigree, is often touted as an all-seasons strategy, one that doesn’t require keen timing skills and that allows the retail investor to sleep well at night.

Esmé Faerber, a professor of business and accounting at Rosemont College and the author of three previous “All About” investing books, adds to the growing literature with All About Value Investing: The Easy Way to Get Started(McGraw-Hill, 2014). As the subtitle indicates, this book is written for beginners. More experienced value investors should turn to such recent works as Quantitative Value by Gray and Carlisle, The Art of Value Investing by Heins and Tilson, The Manual of Ideas by Mihaljevic, Damodaran’s Investment Valuation, or even his The Little Book of Valuation.

Value investing is neither easy nor mechanical. Faerber takes the reader through the basics: the balance sheet, income statement, and statement of changes in cash. She explains how ratio analysis “uses a company’s financial information to predict whether it will meet its future projections of earnings.” (p. 130) The investor/analyst can use five groups of ratios: liquidity, activity, profitability, leverage, and common-stock related ratios. The value investor also has to assess qualitative factors, such as the company’s competitiveness and the quality of its management.

For those who don’t want to go through this kind of company-by-company analysis, Faerber explains the use of mutual funds, closed-end funds, and ETFs. She rounds out the book with chapters on bonds, preferred stock, and options, rights, and warrants.

All About Value Investing offers a glimpse into a respected style of investing, perhaps enough to whet the reader’s appetite to delve further.

No comments:

Post a Comment