Book Review: Book of Value – The Fine Art of Investing Wisely

Anurag Sharma is the author of Book of Value: The Fine Art of Investing Wisely published in September 2016. Book of value provides both theoretical and philosophical aspects relevant for an investor conducting a business analysis and deciding on whether or not to invest in a certain business.

The core thesis of the book is that fundamental analysis – both quantitative and qualitative – is useful when it comes to investing. Further, the approach of investing should be considered as a problem of choice, not as a mathematical problem. In the author’s view “wise investing” is based on carefully made choices based on sound intelligent analysis of facts and circumstances. Every investor then must learn to make a habit out of making good choices. Something that is easier said than done since undoing oneself from bad habits, even changing good ones, is rather complicated to accomplish in practice. But having a robust framework will at least help you on the way.

Book of Value provides a framework for the reader to use as a basis for developing a way of thinking – about financial markets, business analysis, and investing – and of casting investing as a problem of choice, and then drawing upon a broad range of disciplines to improve the quality of choice. Recasting investing as a problem of choice will require professional judgement from the investor, something that this book attempts to provide a basis for.

We are all prone to systematic biases to some extent which could make our decision-making process easily corrupted. Confirmation bias and loss-aversion are only two examples that could lead to irrationality and in the end, permanent loss of capital. By incorporating these behavioural economical aspects into the framework – even though they are pretty hard to manage many times – we increase the odds of 1) not forgetting them to start with and 2) managing them as best as we can as part of our investment process. Building upon this the author sets out to build a framework for investing based on the principle of negation, i.e., a systematic approach to disconfirmation. The systematic approach to business analysis and investing is essential here.

Walmart is used as a case study throughout the book and the author applies the different concepts for analysis in a coherent way, from valuation to analysis of stability and strength on to qualitative analysis. This will make it possible for the reader to conduct the same analytical process applied to other businesses. By setting up an investment thesis the analysis is then carried out with the aim of negation, that is, to disconfirm the thesis (for example, current market price = value). The first step is the quantitative analysis and to look at market price, valuation, stability of earning power and cash flows and returns, financial strength etc. If the investment thesis still stands and is not refuted from the qualitative analysis, the next step is to move on to the qualitative analysis and looking at the business itself, the industry it’s in, and any trends etc. The question then is whether we are going to be able to refute the investment thesis from the conclusions drawn based upon our qualitative analysis.

The last section of the book provides some discussion and thinking about how to set up a stock portfolio in a proper way. Also, the author reviews Berkshire Hathaway’s stock portfolio in the most recent years and also reviews the IBM investment to see whether this was a reasonable investment at the time it took place and what it looks like at the moment.

This book could have been much longer than it actually is, something that applies to a lot of other books as well. Some parts are a bit thin but the reader most likely gets the basic principles and concepts needed to be able to see the framework as a whole. When reading the book you can highlight any parts that you want to learn more about. For example when reading about what makes a good or great business you might want to consider reading other books on the same subject to deepen your understanding even further (for example in this case you could read Competition Demystified, Competitive Strategy, The Little Book That Builds Wealth, Strategic Logic, just to name a few). The same goes for the part about valuation and how to value a business.

To conclude, the Book of Value is clearly a good book, and definitely a book worth reading. It might even be a great book, but that I leave for you to find out. 

Disclosure: Book of Value: The Fine Art of Investing Wisely (Kindle version) was purchased by Hurricane Capital from Amazon at the retail price.

Book Review: The Snowball Effect – Using Dividend & Interest Reinvestment to Help You Retire on Time

The introduction to The Snowball Effect: Using Dividend & Interest Reinvestment to Help You Retire on Time written by Timothy McIntosh starts with a well-known quote from Warren Buffett about how to approach investing and making money in the stock market.

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

This quote then serves as a thread throughout the book as the different parts about dividend investing are accounted for. The main theme in The Snowball Effect is how dividends should be considered by any long-term investor as a crucial part of the total returns. And, for sure, wouldn’t it be great if you knew that you’d have recurring dividends coming into to your account, certainly if the stock market were to close down for some time (hopefully it won’t).

The Snowball Effect starts off with a discussion about the different secular bear markets that’s taken place from 1906 up until 2011. And I’m pretty sure that many of us are familiar with the mantra “stocks always go up.” A statement that, according to the author himself, is “a falsehood.” To back his view up the author lays out some interesting statistics that also serves as a great summary of financial stock market history. The different secular bear markets up for an review by the author are the ones occurring in 1906-1924, 1929-1954, 1966-1982, and 2000-2011.

Except for the historical lessons in this book, I also enjoyed all the data provided regularly throughout about dividend yields and stock market returns, just to give a few examples. Also, there’s an interesting table in the midst of the book summing up the best and worst single days in the DOW. A table that in hindsight serves as a fascinating read and reminder of Mr. Markets presence throughout the years.

Another theme is the collection and reinvestment of dividends back into the stock market to increase the future dividend power of your stock portfolio. A great way enabling the investor to (hopefully) collect stable and growing cash returns in the future, especially if the stock market enters into another secular bear market.

The author provides the reader with some checks to be used when picking the best dividends stocks, what to look for, as well as some guidance on market timing (even though timing is a tricky part of it all as we know when it comes to investing).

The dividend yield, that is dividend in relation to price, is a metric that is often shown on different sites and also in most investment publications. Inverting the dividend yield we get the price to dividend ratio, about which the author writes:

If you apply a price-to-dividend ratio analysis to stocks you are thinking of purchasing or already own, you can purchase, or reinvest, cash at optimal points in time. If Pepsi’s share price falls and the yield nears 4 percent, the investor could then time her purchases in the most efficient manner and gain the most shares of Pepsi stock possible. Following this type of market timing will allow an investor to collect more share of a company’s stock at the times when it is most undervalued.

The reader also gets a chapter devoted to the covered-call strategy in dividend investing, and a chapter with a discussion of what makes the best investment area when it comes to dividends (micro-cap or larger-cap dividend firms).

To sum up, this is a book well worth reading. With the important overall topic about dividends (as one of the factors in the calculation of the total return) the book’s building blocks (see table of content below) make this a great read.

Summary of Content

Introduction

Chapter 1: The Treacherous Secular Bears

Chapter 2: The Power of Dividends

Chapter 3: The Snowball Effect: The Promise of Reinvesting Income

Chapter 4: The Small-Cap Paradox

Chapter 5: The Power of Bond Interest

Chapter 6: The Covered-Call Strategy

Chapter 7: The Future and the Top 100

Suggestion for Additional Reading

The Top 100 List

Disclosure: I received the book in this post without having to pay a cent. Regardless, as in any case when I haven’t received something, I only make recommendations I personally believe will be of benefit to my fellow readers. I cannot tell for sure whether the fact that I received the book for free made me write this post, i.e., reciprocation tendency. I sincerely hope that I would have written the same words in a situation where I had bought the book myself. Except for receiving the book for free (and the stamps on the envelope) I have not, and will not, be compensated in any way for any further writings etc. If you want me to review a book, please let me know.

InvestingByTheBooks: Reviews of the Best Investment Books Ever

BS1Book Reviews of Investing Books

Found a great homepage earlier this week, called InvestingByTheBooks, a site fully dedicated to reviewing investment books. Check it out here.

At the moment there are about 177 book reviews. Not bad! Of these 177, I have read 28. So a lot of great books left to read, which is great.

At InvestingByTheBooks you will also find their own top 50 list of the best investment books ever.

In the top ten you will find books written by:

  1. Philip Fisher (Common Stocks and Uncommon Profits)
  2. Benjamin Graham & David Dodd (Security Analysis)
  3. James Montier (Value Investing)
  4. Benjamin Graham (The Intelligent Investor)
  5. Bruce Greenwald & Judd Kahn (Competition Demystified)
  6. James Montier (Behavioural Investing)
  7. Howard Marks (The Most Important Thing)
  8. Edvin Levère (Reminiscences of a Stock Operator)
  9. Michael Mauboussin (More Than You Know)
  10. Nassim Nicholas Taleb (Fooled by Randomness)

See the rest of the top list here.

BVIBT10Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company or individual mentioned in this article. This article is informational and is in my own personal opinion.