From Theory to Practice – A Guide to the Value Investing Process
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The purpose of this book is to show the reader a process that will enable him/her to find the stocks that are worth one dollar, but trade for fifty cents. This process involves three-steps. In the first step, the book develops an approach to identify possibly undervalued stocks. This step will start with a pure Ben Graham search approach and will be further refined to evolve into the Buffett search approach. In the second step, the book develops a valuation methodology to determine the intrinsic value of the stocks obtained from the first step. It first discusses the theory and the differences, at a theoretical level, between value investing valuation and the traditional valuation one learns at a finance program at any university and then transitions from theory to practice. Ben Graham type, as well as Buffett type franchise and growth companies will be analysed and valued in this step. The final step is that of deciding to buy or not, using the concept of Margin of Safety. Portfolio formation and risk management are also discussed in the final step.
The book’s Foreword is written by Mr. Prem Watsa, CEO of Fairfax Financial Holdings Ltd. Endorsements of the book have been written by prominent value investor professionals such as, W. Browne, L. Cunningham, R. Oldfield, M. Pabrai, B. Robotti, T. Russo, K. Shannon, and A. Van Den Berg.
Six permanent files accompany the book – a “read me” file, a valuation model and framework which facilitates simulations and the practical application of value investing, and four files that include the full valuation reports of two U.S. companies, Fonar Corporation and Douglas Dynamics Inc., and selected notes to financial statements (including ten-year financials) for Fonar Corporation and Douglas Dynamics Inc. In addition, several transitory files, with valuation reports that may change from year to year to keep valuations up to date, supplement the book.
Please Note: The permanent and transitory v
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