So-so book VS Highly recommended
This review is from: Security Analysis and Business Valuation on Wall Street + Companion Web Site: A Comprehensive Guide to Today's Valuation Methods (Wiley Finance) (Hardcover)
As a general valuation text, this book is, at best, of average quality. I would go with Damodaran's Investment Valuation or Koeller, et al.'s Valuation texts instead.
Part One of this book on the Investing Environment is too long and had too much extraneous information.
Part Two is pretty good. This is where I think most of the value in this book resides. The author gives you a good guide on how to perform an industry and company analysis, including things that have to be considered in order to determine the value of a company.
Part Three is a discussion of various valuation methods, and this is where other books do a better job. For example, Damodaran or Koeller have a much better discussion of valuation methods. The one thing lacking here is that being a post-crisis valuation book, there is no discussion of issues with valuation during the crisis period. For example, blindly applying the CAPM when the risk-free rate was declining faster than increases in the risk premiums during certain periods during the crisis led to wacky results.
Part Four is on "Special Cases," which was the most promising of all the topics but it turned out to be the biggest disappointment. I was (apparently) mistaken to think that this was going to be a more detailed discussion and implementation of the various special cases you can see from the TOC (PE, financial firms, insurance companies, etc.). However, this turns out to be just a high-level discussion of things most experienced valuation professionals know already (i.e., there are complications in valuing these other types of companies). The chapters in this section do not go into detail as to how to work around some of these complications. For example, the author discusses how to read what is purported to be an excerpt of the loss reserve table from the financial statements (this is also an incomplete, overly simplified depiction of the tables which are much more complicated in reality). However, the author doesn't go the next step to explain clearly as to how this information can be used in the valuation exercise.
Part Five is also pretty weak. For example, the author spends time giving his opinion on the "causes" of 2008 crash, which I think would have been better spend discussing valuation issues during the crisis.
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I just wanted to add several comments. Overall I am very familiar with the first edition of this book, because I had to use it as a major source of guidelines at my previous job. The book was a great source! I had some background in structured finance and investments analytics, but I had zero experience in equity valuation before. In some 40-60 hours I was able to learn a lot about firm valuation (especially useful material - dividend discount model, market comparables, and free cash flow models) so that I could start preparing my first equity valuation reports. The second edition is an extended version, which still has all the advantages of the first edition: straightforward approach to valuation, a lot of examples, as little cumbersome math as possible. It is definitely a must read for any private investor and novice financial analyst. By the way, some sections of this book (industry analysis) are still included in the CFA curriculum (level 2, Equity valuation).
As a general valuation text, this book is, at best, of average quality. I would go with Damodaran's Investment Valuation or Koeller, et al.'s Valuation texts instead.
Part One of this book on the Investing Environment is too long and had too much extraneous information.
Part Two is pretty good. This is where I think most of the value in this book resides. The author gives you a good guide on how to perform an industry and company analysis, including things that have to be considered in order to determine the value of a company.
Part Three is a discussion of various valuation methods, and this is where other books do a better job. For example, Damodaran or Koeller have a much better discussion of valuation methods. The one thing lacking here is that being a post-crisis valuation book, there is no discussion of issues with valuation during the crisis period. For example, blindly applying the CAPM when the risk-free rate was declining faster than increases in the risk premiums during certain periods during the crisis led to wacky results.
Part Four is on "Special Cases," which was the most promising of all the topics but it turned out to be the biggest disappointment. I was (apparently) mistaken to think that this was going to be a more detailed discussion and implementation of the various special cases you can see from the TOC (PE, financial firms, insurance companies, etc.). However, this turns out to be just a high-level discussion of things most experienced valuation professionals know already (i.e., there are complications in valuing these other types of companies). The chapters in this section do not go into detail as to how to work around some of these complications. For example, the author discusses how to read what is purported to be an excerpt of the loss reserve table from the financial statements (this is also an incomplete, overly simplified depiction of the tables which are much more complicated in reality). However, the author doesn't go the next step to explain clearly as to how this information can be used in the valuation exercise.
Part Five is also pretty weak. For example, the author spends time giving his opinion on the "causes" of 2008 crash, which I think would have been better spend discussing valuation issues during the crisis.
*************************************************************************************
I just wanted to add several comments. Overall I am very familiar with the first edition of this book, because I had to use it as a major source of guidelines at my previous job. The book was a great source! I had some background in structured finance and investments analytics, but I had zero experience in equity valuation before. In some 40-60 hours I was able to learn a lot about firm valuation (especially useful material - dividend discount model, market comparables, and free cash flow models) so that I could start preparing my first equity valuation reports. The second edition is an extended version, which still has all the advantages of the first edition: straightforward approach to valuation, a lot of examples, as little cumbersome math as possible. It is definitely a must read for any private investor and novice financial analyst. By the way, some sections of this book (industry analysis) are still included in the CFA curriculum (level 2, Equity valuation).
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