Monthly Archives: March 2014

Book Sale: Investing For The Rest of Us

investing for the rest of us book sale

Get Investing For The Rest Of Us on sale April 1-3…

Investing For The Rest Of Us is on sale April 1-3. You can get this book on Amazon for only $2.99, a 63% discount from the regular price. Since readers of StockIdeas.org are always looking for value, I thought you might appreciate hearing about this sale.

To be honest, I haven’t read yet Investing For the Rest of Us. But now that I’ve heard about this sale I will probably check it out. From reading about Investing For the Rest Of Us on Amazon, it also sounds like it would be useful to the individual or self-directed investor. Again, that represents a large portion of our readership here at StockIdeas.org, so I think it might be a good fit.

Investing For The Rest Of Us is designed to help you learn how to easily construct an investment portfolio even if you don’t have the time, inclination, or skills to closely monitor your portfolio.

Could you ask for anything more?

If you’re feeling curious I encourage you to check out Investing For The Rest Of Us for yourself. And if you’re already read Investing for the Rest Of Us please share your thoughts in the comments section below. I always love to hear what readers are saying about new popular investment books.

From what I can tell, it doesn’t matter if you’re just getting started with investing or you’ve been building a portfolio for years. Investing For The Rest of Us aims to provide a practical approach to the stock market that you can use without spending much time or energy. So if you’re interested in the idea of passive outperformance, then this book might just be for you.

At 162 pages Investing For the Rest Of Us should be a pretty easy read. It also has almost all 5 star reviews on Amazon, so for a couple of bucks it’s probably worth seeing. I still have a few books on my current reading list but I’ll definitely let you know if I pick up Investing For The Rest Of Us. You can also read other reviews of Investing For The Rest of Us if you’re still curious to learn a little more about this passive investing book.

And By The Way: If you’re still curious about other techniques to improve your stock market investing I encourage you to download my free ebook below. I’ll also send you my favourite tools and resources each week to help you improve your stock trading knowledge.

CFA Level 1 Ethics Learning Outcomes

cfa ethics learning outcomes level 1

Read this post to learn the CFA Level 1 Ethics learning outcomes…

CFA Level 1 Ethics Learning Outcomes are important to focus on when studying for your CFA Level 1 exam. That’s because while the ethics study session is pretty short, it carries a big weight on the CFA exam, worth 15% of the exam.

By the way, you can also review all of the CFA Level 1 study topics here. Keep in mind these notes are not from the CFA curriculum, but actually from the Kaplan Schweser CFA Level 1 study guides. I really like these guides because they are quite concise and focus in on exactly what you need to know.

So here’s what you need to know for the Ethics and Professional Standards study session of CFA Level 1…

Ethics and Professional Standards Learning Outcomes:

The Ethics and Professional Standards are covered in Book 1, Session 1 – Pages 1-98 of the Kaplan Schweser study guide linked to above. 

1a: Describe the structure of the CFA Institute Professional Conduct Program and the process for the enforcement of the Code and Standards.

1b: State the six components of the Code of Ethics and the seven Standards of Professional Conduct.

1c: Explain the ethical responsibilities required by the Code and Standards, including the multiple sub-sections of each Standard.

2a: Demonstrate and explain the application of the Code of Ethics and Standards of Professional Conduct to situations involving issues of professional integrity.

2b: Distinguish between conduct that conforms to the Code and Standards and conduct that violates the Code and Standards.

2c: Recommend practices and procedures designed to prevent violations of the Code of Ethics and Standards of Professional Conduct.

3a: Explain why the GIPS standards were created, what parties the GIPS standards apply to, and who is served by the standards.

3b: Explain the construction and purpose of composites in performance reporting.

3c: Explain the requirements for verification.

4a: Describe the key features of the GIPS standards and the fundamentals of compliance.

4b: Describe the scope of the GIPS standards with respect to an investment firm’s definition and historical performance record.

4c: Explain how the GIPS standards are implemented in countries with existing standards for performance reporting and describe the appropriate response when the GIPS standards and local regulations conflict.

4d: Describe the nine major sections of the GIPS standards.

So there you have it. Hopefully these learning outcomes will help you improve your studying for the CFA Level 1 exam. If you’re contemplating studying the CFA level 1 exam I encourage you to check out the Kaplan Schweser CFA Level 1 study guides yourself to speed up your studying and improve your results.

And By The Way: If you’re not ready for the CFA exam you can still improve your approach to stock markets by downloading my free ebook below. You’ll learn how I have refined my approach to the stock market over the years. You’ll also get free updates, tools and tips sent to you each week with my favorite stock market resources.

Oil Drilling Investments in 2014

oil drilling investments 2014

Are oil drilling investments worth exploring in 2014?

Oil Drilling Investments in 2014 have not performed very well. But does that mean you should pass up on oil drilling investments? Or is 2014 the time to look for value in oil drilling investments before the explode in price?

Well…

In this short article we’ll take a look at some of the risks and tailwinds facing the oil drilling investment thesis this year. And then I’ll share some of the most popular oil drilling investments in 2014. Sound good?  But before sharing my best oil drilling investment ideas and stock picks let’s look at some of the risks associated with investing in oil drillers.

Risks to Oil Drilling Investment in 2014:

Oil drilling investments have lagged in 2014. Despite being relatively cheaply valued there are still some risks that explain why some of the biggest oil drilling investments are trading below book value. So what are they?

One of the biggest risks facing oil drilling investors in 2014 is that there is oversupply of rigs coming into the oil drilling market. This excess of supply means that oil drilling companies are facing pricing pressures. This oversupply is especially risky for oil drilling companies with older rigs, as major oil companies may focus on companies with newer equipment. A reduction in cap-ex by major integrated oil and gas companies could further exacerbate the extra supply.

Beyond the oil drilling market, the rest of the energy mix may present a headwind to deep water oil drillers.  While this risk is a little more speculative it’s hard to ignore the momentum of renewable energy and the natural gas boom. While it’s hard to quantify the immediate impact these emerging energy sources will have, it’s important for oil drilling investors to remember that alternatives to black gold are always being pursued.

Finally, even if all of the macroeconomic risks aren’t materially important, oil drilling investments are not without an intrinsic risk. That’s because oil drilling is a dangerous activity to begin with. Oil investors need to assume some risk based on the possibility of spills or other accidents that could lead to lawsuits. Focus on companies with strong safety records and commitment to effective operating procedures.

But I don’t want to paint too negative of a picture. Oil drilling investments also have a lot of potential upside in 2014…

Benefits to Oil Drilling Investments in 2014:

Despite the risks associated with oil drilling in 2014, the benefits to oil drilling investors are also hard to ignore. Most oil drilling companies have strong histories of operating profits. And these track records are likely to continue out into the future.

For one thing, it’s unlikely that new oil drilling companies will enter the space. There are a couple of big and established players. And given the complex and harsh environment oil drilling companies operate in, there is a significant barrier to entry. This provides a little bit of a competitive moat for those oil drilling investments that have already strongly established operations. In fact, despite the oversupply of rigs coming online, a number of the oil drillers already have significant backlog of revenue booked for 2014.

With that in mind, long term oriented investors may want to start fishing for value in the oil drilling investment opportunities. If you are looking for a long term place to park capital oil drillers might make sense. Plus, a lot of the oil drilling investment opportunities in 2014 pay strong dividends, so investors will accrue the benefit of getting paid to wait. So what oil drilling investments should we be looking at in 2014?

Oil Drilling Investment Examples in 2014:

There are plenty of different ways to find oil drilling investments in 2014. A great place to start is by reviewing the oil and gas drilling and exploration industry. That way you can find oil drilling investment examples that meet your personal criteria (whether that’s a big dividend, a margin of safety, or something entirely different).

One popular oil drilling investment in 2014 is Transocean Limited. You can read my previous RIG analysis here to see why this major oil driller has attracted the interest of activist investor Carl Icahn. Unfortunately, I think RIG faces some headwinds in the form of an older fleet of rigs, and there are some better oil drilling investments for 2014.

For example, SeaDrill Limited and Ensoco are oil drilling companies that have newer fleets and a backlog of orders in 2014, making them relatively attractive oil drilling investments. To be fair, the stock price of both companies appears to be in a bit of a downtrend. But these might be examples of relatively safe oil and drilling investments for longer-term oriented investors.

For full disclosure I am long a small amount of ESV at the time of writing. I like the company because it pays nearly 6% in dividend and is trading just below intrinsic value. The company also has a strong track record of delivering shareholder value. What oil drilling investments are you contemplating in 2014?

And By The Way: If you’re looking for more information on how to find under-valued stock market opportunities you may want to download my free ebook below. You’ll also get free tools, resources and tips each week to improve your approach to the stock market. 

Alpha Masters Book Review

Alpha Masters Book Review

Get a contemporary look at the world’s best hedge fund managers in Alpha Masters…

Alpha Masters by Maneet Ahuja is all about “Unlocking the Genius of the World’s Top Hedge Funds.”

Alpha Master is a great walk-through of the various styles, techniques and investment philosophies of some of the most successful hedge fund managers of the last 20 years. You can certainly learn a lot about improving your own investment returns by reading Alpha Masters.

And hearing the stories of successful Wall Street warriors is always inspiring. So in short…

Alpha Master is an easy to read and enjoyable book, very much in the style of the Market Wizards series. And in this Alpha Masters book review we’ll look at some of the best parts of Alpha Masters, and whether or not it’s the right investing book for you. Now let’s dive into it…

Why Alpha Masters is a Fun Read:

Alpha Masters is all about how the top hedge fund managers got (and stayed) on top. It’s really inspiring and exciting to see how these huge hedge fund managers earned such consistently large returns. If you ever wondered how Ackman, Dalio or Loeb got so good then this book is for you. That’s because…

Each chapter in Alpha Masters is dedicated to a different hedge fund manager or wealth management firm. The chapters give a good overview of how the fund managers developed their successful investing and trading styles. In most cases it also explores some of the major challenges or hurdles these masters had to overcome in order to solidify their success. And the truth is, it’s surprisingly reassuring to learn that most top fund managers didn’t have a smooth ride to success! So…

If you have any desires to manage your own hedge fund some day, this book is sure to inspire you!

Another thing Alpha Masters illustrates effectively is that there are lots of different ways to find investing success. Some chapters focus on arbitrage investors, while others focus on short-only forensic accountants. It’s really amazing to see the different ways investors are able to successfully beat the S&P on a regular basis.

But that’s not even the best part!

The Best Part About Alpha Masters:

Alpha Masters was recommended to me by a reader of StockIdeas.org, and I’m glad it was! This book really helped me appreciate how some of the world’s best hedge fund managers got their organizations off the ground. When you hear about multibillion dollar funds, it’s hard to imagine them starting out.

In fact…

If you’ve ever thought about starting your own investment fund  you probably know what I’m talking about. Going out on your own can be a very daunting process with a lot of hoops and hurdles to get over. But seeing how most of these investing mavens struck out on their own between the ages of 25 and 35 is really illuminating for aspiring investment managers. If you’re trying to grow your AUM this book will help anchor your expectations of what’s required.

And truthfully…

You’ll probably be surprised how many of these hedge fund masters had trouble getting started, often working from home or out of small offices gifted to them by friends. The other common thread in the book that really stood out to me is that each of the hedge fund managers seems to believe that capital is a commodity – and good investment ideas are not.

Let me explain:

All these hedge fund managers have had faith in themselves and their processes for evaluating investment ideas since day 1. By focusing on the quality of analysis. By sharing ideas their passionate about. And by not giving up, these hedge fund masters secured their ability to deliver alpha.

Even though I really enjoyed reading Alpha Masters, there’s one thing you should know before buying your own copy…

Be Careful – Alpha Masters is a Big Picture Investing Book:

If you’re looking for a detailed guide of how to invest like a hedge fund manager then Alpha Masters is probably not the best investing book for you. That’s because there are only a couple hundred pages in the book. That means…

While Alpha Masters does a wonderful job giving a big picture overview of different hedge fund managers and their diverse styles, it’s not entirely practical. Whereas books like The Intelligent Investor are incredibly instructional in nature, this book provides some more intangible lessons.

To be sure, I still learned a lot from Alpha Masters. But the information is more contextual than practical. I think that’s an important distinction depending on what you’re hoping to get out of the book. On the other hand, the easy-reading nature of the book makes it enjoyable and perfect for a long train, flight or even your daily commute.

So now that you have a strong understanding of what Alpha Masters is all about, let’s wrap up this book review…

Alpha Masters – The Final Word:

Alpha Masters is a great investing book that provides an insightful look at the world’s best hedge fund managers. It’s only about 200 pages and each chapter is very much self-contained so it’s an easy to read book. That’s why I recommend you buy Alpha Masters on Amazon today.

If you have a passionate interest in finance, and how to keep up with the best in the investing business, then Alpha Masters is for you. If you want a little more information I encourage you to watch the video book review below.

Alpha Masters Video Book Review:

Where Do You Find Book Value of a Stock?

how to find book value of a stock

Learning to find book value of a stock is a great tool. Here’s where you should be looking…

Where Do You Find Book Value of a Stock? It’s something new investors always want to know. And I can’t blame them. That’s because book value is a fairly accurate proxy for intrinsic value.

And as you probably know…

Calculating intrinsic value of a stock is critical to figuring out what a stock is worth and if you should buy it. So looking at book value is a great way to figure out if a stock is trading around intrinsic value. Of course this method isn’t perfect. But it can help you focus your research on stocks that may be trading under intrinsic value, thereby saving you time.

In short, knowing the book value of a stock is helpful because:

If a stock has a price to book ratio of less than 1 the stock may be trading below the intrinsic value of the company’s assets. On the other hand, if the stock is trading at a multiple of 3 to 4 times book value you can be relatively sure investors are valuing the stock based on future earnings growth (rather than tangible assets).

But where do you find book value of a stock online?

Finding Book Value of a Stock Free Online:

Luckily there are plenty of places all over the internet when you can find the book value of a stock. If you’re a true fundamental analysis purist then you will want to get the official statements from the stock of interest. So how does that work?

To find the book value of a stock straight from the source you can easily go to any publicly traded company’s investor relations webpage and download their latest quarterly financial statements and annual report. The balance sheets included contain everything you need to know to find and calculate book value of a stock. It’s good practice to calculate book value yourself if you’re new to fundamental analysis.

Fastest Ways To Find Book Value of a Stock Free Online:

Of course if you don’t want to calculate the book value of a stock yourself, there are other places to find book value online. And to be honest, this is how I usually find the book value of a stock – just because it’s faster than calculating it myself.

But let me share one word of warning about finding book value of a stock online…

Generally speaking, if you are sourcing information online I recommend you check at least 2 or 3 different sources. The last thing you want to do is invest thousands of dollars based on a mis-calculated book value. Save yourself some pain and make sure to check a couple of the different sources. This is very easy to do and will save you a lot of pain.

The following websites are pretty good for finding book value of stocks:

  • Morningstar – This data is usually pretty accurate. You can also see book value over the past 10 years which is incredibly helpful. It’s much easier to feel confident investing when management has a strong track record of growing book value.
  • Market Watch – Another good source of book value data. Enter ants tock ticker and click on the financials tab. You can see 5 year history of book value and also drill down to quarterly data which is helpful.
  • Yahoo Finance – An easy place to get up to date copies of balance sheets with book value. Just be careful to double check.
  • Finviz Stock Screener – If you want to sort stocks by book value I suggest you check out Finviz.com and use the stock screener to sort and sift stocks that are trading below book value.
  • yCharts.com – Another easy to use source. While yCharts has a premium model you can get book value for free. I like the way yCharts illustrates the change in book value over time.

So there you have it! Now you should know all there is to know about how to find and calculate the book value of a stock. Never again will you worry about overpaying for the assets of a company because you’ll be investing in those with low price too books. Of course that doesn’t mean your home-free in your investing decisions. But it’s a pretty good place to start!

And By The Way: If you want more investing ideas to help improve your approach to the stock market I encourage you to sign up using the form below. You’ll get free access to my 12 page ebook on how I became a profitable investor. And you’ll get information delivered right to your inbox each week with my favourite tools, tips and resources for retail and self-directed investors. Check it out

Magic Formula Stock Screen Explained

magic formula investing stock screener

You don’t need a wand to find investing ideas with this magic stock screen investing formula…

The Magic Formula Stock Screen is an investing methodology developed by famous value investor Joel Greenblatt. The Magic Formula investment approach can make it easy to find great value investing ideas. And beyond just finding ideas, the magic formula helps you execute the investments too!

And the truth is…

Even though the Magic Formula stock screen has been around for a few years, it is still very popular with contemporary value investors. I was particularly intrigued by the Magic Formula stock screener when it was mentioned in The Manual of Ideas and The Dhandho Investor. Plus, Greenblatt states the magic formula stocks beat the S&P-500 96% of the time (reference).

If the Magic Formula stock screener is good enough for those guys, it’s worthy of my attention. So let’s get down to business…

The Magic Formula Stock Screener Explained:

The Magic Formula Stock Screen is pretty simple. So you can get started using the stock screener yourself once you understand the basic components that go into selecting magic formula stocks. The main thing to keep in mind is that the magic formula stock screen isolates stocks with high earnings yield and high return on capital. The idea is to diversify into about 30 of these stocks and rebalance once per year.

Here are the specifics of what you should look for (courtesy of Wikipedia) if you want to do some magic formula investing…

Magic Formula Investing Formula

The magic formula stock screen is easy to manage and implement. Use these steps to find stocks that fit the magic formula investment criteria.

As you can see, the magic formula is actually pretty simple. And it’s very easy to follow because the formula includes specific steps of when you should buy and sell stocks. If you want to get an average 30.8% annual return with only doing one day of research per year this is your ticket to success. No wonder they call it the magic formula!

If you want to try some magic formula investing for yourself, you can use an online stock screener to get started. Or you can sign up at http://www.magicformulainvesting.com. Now let me suggest…

Tweaks to The Magic Formula Stock Screener:

As always, stock screeners are only a starting point. And they can always be improved upon. If you want to further refine the magic formula stock screen there are a couple of things you could do to even further improve your odds of your success. To be sure, these aren’t condoned magic formula investing ideas. But it’s fun to find new ways to sort and sift the best magic formula stock ideas.

To get started…

One thing I would do is combine the magic formula stock screen with the results from some of the other best value investing stock screeners. So for example, you could add additional filter criteria to your screen to find stocks that fit the magic formula stock screen AND also have insider buying… Or… you could be looking at stocks that are on the magic formula stock screen AND are within 10% of their 52 week highs (e.g. they have some price momentum). See what I mean?

There are truly no limits to how you can use the magic formula stock screen as a jumping off point for finding stock picks and investment ideas. I encourage you to overlay your favourite fundamental or technical analysis criteria to find magic formula stock picks that fit your preference. Of course, the beauty of magic formula is that you don’t need to tweak it. But sometimes us curious investors hunting for the best deal just can’t help ourselves!

And By The Way: If you’re looking for more information on how to find valuable stock picks and ideas I encourage you to sign up using the form below. You’ll get a free copy of my 12 page ebook on how I developed my approach to the stock market. And I’ll also send you the best tools, tips and resources each week to help you improve your stock trading and investing. 

Avoiding The Worst Companies To Invest In

worst companies to invest in

Avoid the worst companies to invest tin with these tips…

Avoiding the Worst Companies to Invest In can go a long way to helping you protect your portfolio. Even if you buy just one bad investment it can really hurt your portfolio. So naturally, the big question is…

“How do you avoid the worst companies to invest in?”

In this blog post we’ll find the worst companies to invest in…. and show you how you can avoid them! By looking at a few different criteria we’ll be able to easily find the worst companies for investment so you can confidently steer clear of them. Make sense?

Now let’s look at some of the most common ways to spot the worst companies to invest in…

Valuation Helps Avoid The Worst Companies to Invest In:

The easiest way to find and avoid the worst companies to invest in is by using financial statements to calculate an intrinsic value for the company. Most intelligent investors know that you should try to buy companies that are trading below their intrinsic value. And the truth is, when you focus on valuations you can almost always avoid the worst companies to invest in.

But it’s not a golden ticket answer. For example one common mistake value investors make looking for cheaply-valued companies to invest in is that they forget about growth. It sounds great to buy inventory for 50 cents on the dollar. But in reality it only works if you can sell that inventory at market value. So…

While looking for companies trading below book value is a great start, make sure there is some revenue on the income statement and a bit of a growth narrative to ensure capital can continue to be returned to shareholders.

Just keep in mind, while earnings growth is what investors like to see, too much of a good thing can still be dangerous. Read on to see what I mean.

The Worst Companies to Invest In Have Very High Earnings Expectations:

A lot of great companies that are growing fast can make some of the worst investment opportunities. Why’s that? Well…

It’s because even if companies are growing it doesn’t mean they will always return cash to shareholders. Instead, money is reinvested to drive growth, improve next quarter’s earnings and fend off competitors. And unfortunately….

If fast growing companies can’t keep up the hype of their exaggerated earnings, these high flying momentum stocks will collapse. And since the prices are so inflated these stocks have a really long way to fall. Just think of the dot com bubble if you’re looking for an example.  So even though it sounds counter-intuitive, that’s why even companies with strong earnings growth can be the worst companies to invest in.

Now just for the sake of clarification…

Growing companies are definitely great. And steady earnings growth is something all investors want to see. But enterprising investors get into trouble though when they buy companies that have already raised earnings expectations multiple times in a row. So just be conscious of how earnings expectations align with reality.

Of course, if you do want to invest in a company but you’re afraid it’s over-valued or over-hyped you can protect yourself with diligent risk management. This is best done by avoiding over-sizing the position and use stop losses.

More specifically…

Protect Yourself From The Worst Companies to Invest in With Stop Losses:

One of the easiest way for traders or investors to avoid pain and protect their portfolio is using stop losses. So how does that work exactly?

Well I am hardly the first person to write about stock losses. But that’s because they work! So rather than reinvent the wheel I’ll refer you to Stan Weinstein’s Stop Loss Strategy. I found this approach to be incredibly actionable and it should really help you avoid investing in the worst companies.  Sound good?

And By The Way: If you’re looking for more ideas to improve your approach to the stock market I encourage you to download my free ebook below. You’ll also get weekly email updates with the best tools and resources for individual and self-directed stock traders.

CFA Level 1 Study Topics and Tools

cfa level 1 study topics and tools

Read this if you’re thinking of flexing your analysis muscles with CFA Level 1…

CFA Level 1 Study Topics and Tools are of interest to investors considering their Chartered Financial Analyst qualification. The CFA is largely considered to the hardest test on Wall Street…

So what does this difficult exam encompass?

In this blog post I’ll share the CFA Level 1 Study topics, exam weights and the number of learning outcome statements. By the end of this post you’ll have a great understanding of the CFA Level 1 study topics, and what each section of the exam is worth. But before you review the CFA Level 1 study topics there’s one thing to keep in mind…

When looking at the CFA Level 1 study topics, keep in mind the number of learning outcome statements per section does not correspond to the exam weight. This is a common mistake so just be aware that (for example) even though ethics section only has 13 learning outcome statements it is 15% of the exam. So when reviewing the CFA Level 1 study topics just keep in mind the percentage points per learning outcome. Now…

Let’s get into the CFA Level 1 Study Topics and some of the best tools to help you get started studying for your CFA…

CFA Level 1 Exam Weights and Learning Outcome Statements:

The good thing about writing the CFA Level 1 exam is that the CFA institute makes it easy to find out what you need to prepare for. Here’s a quick breakdown of Study topics, exam weights and the number of learning outcomes:

  1. Ethics – 15% – 13
  2. Quantitative Methods – 12% – 87
  3. Economics – 10% – 94
  4. Financial Reporting and Analysis – 20% – 109
  5. Corporate Finance – 8% – 45
  6. Portfolio Management – 5% – 27
  7. Securities Markets and Equity Investments – 10% – 60
  8. Fixed Income – 12% – 66
  9. Derivatives – 5% – 37
  10. Alternative Investments – 3% – 21

As you can see there are quite a lot of topics in the CFA Level 1 curriculum. There are thousands of pages of reading and over 550 learning outcomes! The CFA is no easy undertaking but being a charter holder is a great way to validate your knowledge of financial analysis.

Other CFA Level 1 Study Tools and Resources:

In addition to the above level 1 exam weights, there are another of other helpful online resources to help you prepare for the CFA Level 1 exam topics.

AnalystForums.com has a lot of great resources to help you get up to speed with CFA Level 1 study topics. Check out the CFA Level 1 Forum to get in on the conversation and start learning from other CFA Level 1 students who are studying as well. There’s also a good discussion thread on CFA study strategy you might enjoy reading.

The CFA institute also provides an in-depth Candidate Body of Resources (PDF). This document will give you a working summary of all the main areas of the exam. I recommend giving it a read before you get started studying the CFA Level 1 topics.

And while you’ll probably want to get your own copy of the CFA study guides and textbooks, Investopedia has a great CFA Level 1 study guide. If you’re having trouble deciding if studying the CFA Level 1 exam is right for you then check out this free guide to see if the study topics are of interest to you. The CFA is a difficult qualification to achieve, requiring 3 exams and years of professional experience. So are you interested in studying CFA Level 1?

And By The Way: If you’re not ready for the CFA but are still curious about improving your approach to stock markets, I encourage you to download my free ebook below. You’ll also get free weekly updates with my favorite tools and resources to help improve your stock trading and investing decisions.

The Dhandho Investor (Book Review)

The Dhandho Investor Book Review

Is The Dhandho Investor a value investing book worth reading?

The Dhandho Investor, by Mohnish Pabrai provides you with “The Low-Risk Value Method to High Returns.

And while you may not have heard of Mohnish Pabrai, Pabrai Funds, or The Dhandho Investor, this is a value investing book you won’t want to miss. And the reason is…

Mohnish Pabrai is a very successful value investor who has attained massive returns through relatively simple methods. It’s almost unbelievable how easy he makes investing look. And that’s what the Dhandho Investor is all about.

So in this book review I’ll share why you should read The Dhandho Investor, as well as my favourite part of the book and what this value investing book leaves out.

Now let’s get into this book review…

Why You MUST Read The Dhandho Investor:

The Dhandho Investor is a fantastically simple investing book. While a lot of value investing and technical trading books are tough to understand, The Dhandho Investor is very easy to grasp. Plus the book is only about 180 pages and the font is quite large. So you can whip through The Dhandho Investor in a couple of days without a sweat.

Now as for the content…

The Dhandho Investor is primarily based in anecdotes and examples. The Dhandho Investor starts out with a discussion of simple yet profitable business models. It explains what you should look for when evaluating businesses and investing in them. The colloquial nature of the book makes the concepts really easy to grasp. But don’t get me wrong. The Dhandho Investor is much more than just simple stories.

The Dhandho Investor quickly moves on to talk more explicitly about the low risk pursuit of wealth, and exactly what you should look for when you’re investing in stocks. Along the way, the author shares lots of insight and examples of his own investing decisions (like why he copied Warren Buffett’s investing strategy), what made him pass up on certain stocks, and why he was compelled to pull the trigger on other equity purchases.

And actually:

The Dhandho Investor covers a wide variety of discussion topics that will be of interest to investors. And you’ll be happy to know that each topic is covered in just enough detail that you get the hang of it, without getting overwhelmed or bored. Finally, the information is also very actionable. For example…

There is some great content on how investors should decide when to buy and sell a stock that can really help you improve your returns and avoid selling too soon or pulling the trigger on a risky deal. Getting authoritative answers to these fundamental questions is incredibly valuable.

But thats only the tip of the iceberg. Now let me share my favourite part of The Dhandho Investor with you…

The Best Part About of The Dhandho Investor:

The best part of The Dhandho Investor is how simple the book is. I’m not sure how the author does it but he really demystifies the world of value investing, which is no small feat. There are even a couple of simple discounted cash-flow examples that you might need to read twice if you’re new to this stuff. But…

For the most part The Dhandho Investor does a very job keeping it simple. If you were thinking about reading Security Analysis but are a bit intimidated by the length and scope of the book, then The Dhandho Investor might be a much better place to start getting up to speed with the basics of value investing.

That said, The Dhandho Investor isn’t perfect. So just as a warning….

Here’s What The Dhandho Investor Leaves Out:

While The Dhandho Investor is a really great book, there are a couple of things it leaves out. This is in large part because the book is only about 180 pages. So you can’t cover the entire world of investing with a book that short.

And even though The Dhandho Investor provides a couple of references for the reader, it largely leaves out some of the more complex aspects of value investing. I think this is okay (and the book might actually be worse if it were too dense). But The Dhandho Investor sort of assumes that you will do further due diligence and research.

Of course this is standard practice for value investors but a little more focus on external references might have helped. But you’ll probably enjoy The Dhandho Investor more if you have a little bit of familiarity with value investing.

So do you think The Dhandho Investor the book for you?

The Dhandho Investor – The Final Word:

The Dhandho Investor is an excellent book. I was able to get through it very quickly while still absorbing a ton of information and knowledge. I really found the simple approach to be refreshing and powerful. So if you’re curious about the world of value investing and how to apply it to your portfolio I recommend you buy The Dhandho Investor on Amazon today.

The Dhandho Investor really helped me round out my view of value investing. And it helped reinforce some very important concepts that I was admittedly a little foggy on. If you need a new book this month look no further than The Dhandho Investor. If you want more information you can also watch the video book review below.

The Dhandho Investor Video Book Review:

How To Calculate Intrinsic Value of Common Stocks

how to calculate intrinsic value

Read this post to learn more fun calculator tricks!

Knowing How to Calculate Intrinsic Value of Common Stocks can help you invest intelligently. And luckily, with the tools and calculators available free online, calculating intrinsic value of a company’s common stock is easier than you think.

So…

Read this short blog post to learn how to calculate intrinsic value of common stocks. Additionally, there’s also a list of free online intrinsic value calculators online at the bottom of this post so you can start calculating intrinsic value for yourself.

And just to be clear:

Intrinsic value is basically defined as the true value of the company (or asset) as based on fundamental analysis without regard for the market price. It’s the second part of that sentence that should really catch your attention. Calculating intrinsic value means ignoring the erratic quotations of Mr. Market.

How to Calculate Intrinsic Value – The Basics:

Learning to calculate intrinsic value is actually pretty easy. And with today’s online tools and intrinsic value calculators it’s easier than ever to figure out what a company’s common stock is fundamentally worth. But before we start cracking out calculations of intrinsic value, let’s quickly review some of the basics.

The main point to keep in mind when calculating intrinsic value is:

Calculating intrinsic value involves two main parts. The first component to consider are the net current assets of the company. And the second thing to keep in mind are the current (and future) earnings. By focusing on assets and earnings you can start to figure out what a company is worth.

A basic example of this is looking at the Graham Number. This quick and dirty calculation for intrinsic value incorporates both the assets and earnings of the company to arrive at intrinsic value. Of course…

You’ll want to go beyond just the Graham Number or the Benjamin Graham Formula if you’re interested in accurately calculating intrinsic value. Nevertheless, these back-of-the-envelope analytical techniques can help you see and appreciate how earnings and assets factor in to the intrinsic value calculation.

Nowadays:

Most intrinsic value calculation takes the form of discounted cash-flow analysis. In this case, you figure out the net working capital of the company and then add the discounted value of future cash flows. This sounds complicated but it’s actually pretty easy. The link above shares the formulas you can use in detail for calculating intrinsic value.

Finally, if you don’t feel like crunching these intrinsic value numbers by hand (even though it’s easy and worthwhile) there are a number of online calculators you can use for free to help you accurately calculate intrinsic value.

Calculate Intrinsic Value With Free Online Intrinsic Value Calculators:

The great thing about living in this internet era is that not only can you trade stocks online, but you can also research stocks online VERY easily. And instead of combing through the Moody’s Manual by hand there are all kinds of free tools to speed up your research. So here are my favourite intrinsic value calculators available free online:

  • Warren Buffett’s Value Calculator: While Warren Buffett has never explicitly shared his intrinsic value calculations he has talked in broad strokes about how to calculate intrinsic value. This free online calculator gives you intrinsic value results when you plug in the required variables. Check MarketWatch or Morningstar for the required data points.
  • Free Ben Graham Intrinsic Value Calculator: This online intrinsic value calculator works much the same as the one above. It relies on Ben Graham’s formula for arriving at intrinsic value.
  •  Weighted Average Cost of Capital (WACC) Calculator: Discounted cash flow analysis requires you reduce the value of future earnings based on the time value of money. While a lot of investors use a standard discount rate, you can use the WACC calculator above to further improve your calculations of intrinsic value. Here’s a short video I made on how to use the WACC Calculator.

Finally,  I’ll share another article if your’e looking for a much more in-depth discussion of how to calculate intrinsic value.  If you’re still a little foggy on the principles behind calculating intrinsic value this article will bring you right up to speed…. Now, we’re almost done.

But in case you’re starting to feel confident with your intrinsic value calculations there’s one thing you need to know…

Common Mistakes When Calculating Intrinsic Value of Common Stocks

I don’t want to rain on your parade. And at this point I know you’re probably very excited about your ability to calculate the intrinsic value of common stocks. But I want to give you one important warning… so here it is…

This eBook can help you learn to calculate the intrinsic value of a stock pick for yourself. Check it out! (Click to see)

“Your calculations of intrinsic value for your common stocks are only as accurate as the underlying assumptions!”

Do you know what this means? It means that if you make crazy assumptions about future growth rates your calculations of intrinsic value will be wrong. The best investors look for a “margin of safety” in their investments wherein they will stand to make a significant amount of money even in conservative discounted cash flow analysis.

So just remember this…

When you’re calculating intrinsic value it pays to be modest and conservative in your assumptions. Run models and simulations that rely on sub-par growth to see if your favourite common stock can keep intrinsic value even in a low-growth environment. Without this step you  might be inflating the intrinsic value of your common stock more than you think. Would Ben Graham approve?

And By The Way: If you’re looking for more free online tools, tips and resources to help you improve your approach to stock markets then sign up for the email form below. You’ll get a free 12 page ebook showing how I created an approach to consistently extract capital gains. You’l also get free tips, tools and resources each week to help you improve your trading and investing.