Modern Security Analysis

Auteur

MARTIN J. WHITMAN is Chairman of the Third Avenue Funds and founder of Third Avenue Management, an investment adviser to private and institutional clients. Mr. Whitman has proven for more than fifty years that active, opportunistic investors can find under-priced securities in companies with strong balance sheets. He is also an adept control investor who was an important participant in the rehabilitation of Nabors Industries and Covanta Energy, among others. He was Third Avenue's Chief Investment Officer from its founding through January 2010. For over thirty years, Mr. Whitman was a Distinguished Management Fellow at the Yale School of Management. He is also an honorary trustee at Syracuse University which is also home to the Whitman School of Management. He is a frequent speaker and commentator within the financial services community. FERNANDO DIZ is the Managing Director of the Orange Value Fund, LLC, the Martin J. Whitman Professor of Finance and the Director of the Ballentine Investment Institute at Syracuse University. He teaches classes in value, control and distress investing and created and directs the two-year Orange Value Fund program. He is the co-author with Martin J. Whitman of Distress Investing: Principles and Technique. Professor Diz received his MSc and PhD degrees from Cornell University.

Texte du rabat

With the crash of 2008 still ringing in the market's collective ears, the value investing philosophy has never seemed more relevant or sound. But in the eighty years since Benjamin Graham and David Dodd's Security Analysis took the investing world by storm, much has changed in the investing environment. Working from the simple guiding principle that "safe and cheap" is the most reliable way to minimize investment risk while maximizing long-term returns, Whitman, over the course of his more than fifty years as an investor and fund manager, has developed an investing approach that has made fortunes for his many clients--and himself--in all economic climates. A book that is sure to become an investing classic, Modern Security Analysis reveals the details of Whitman's approach to analyzing businesses and the securities they issue. While conventional approaches to investing, including Graham and Dodd fundamentalism and academic finance, take a top-down approach to analyzing securities and businesses, the bottom-up approach you'll discover here looks at companies not merely as aggregates of operational cash flows and earnings--their pure going concern attributes--but also as entities actively involved in wealth-creating "resource conversion" activities. In essence, that entails identifying a company's potential for generating wealth in many different ways, in addition to flows from operations, including mergers and acquisitions, spinoffs, recapitalizations, liquidations, changes of control, having attractive access to capital markets, and more. Clearly accessible with the help of numerous examples and several case studies, Martin Whitman and co-author Professor Fernando Diz describe proven methods for:

• Developing a thorough understanding of many companies' business and wealth generating attributes
• Appraising business managers not only as operators but also as dealmakers, investors, and financiers
• Understanding the importance of credit worthiness for any economic entity
• Understanding the important differences between control and passive investing
• Appraising and avoiding investment risk
• Choosing the right amount of diversification or the level of portfolio concentration
• Buying growth without paying for it
• Avoiding the many pitfalls of following conventional wisdom
• Understanding the significance of resource conversion activities in the generation of business value
• Understanding what value investing is relative to other forms of investing Offering a unique opportunity to learn a proven, time-tested alternative to conventional security analysis from an investing legend, this book is must-reading for finance professionals, including security analysts, money managers, institutional investors, finance academics, and economists as well as anyone seeking to invest with a large margin of safety.

Contenu

Acknowledgments xv

Introduction 1

Part One The Foundations of Modern Business and Security Analysis 9

Chapter 1 The Scope of Fundamental Finance, Investing, and the Investor Landscape 11

Investing versus Speculating 12

The OPMI Defined 17

Activists 18

Summary 18

Chapter 2 A Short Introduction to the Going Concern and Resource Conversion Views of Businesses 19

Methods of Wealth Creation 20

The Pure Going Concern View 21

The Resource Conversion View 23

Summary 25

Chapter 3 Substantive Consolidation and Structural Subordination 27

Substantive Consolidation Not of Prime Importance 29

The Accounting for Stock Options Controversy in Light of the Substantive Consolidation Doctrine 32

Structural Subordination Not a Significant Factor 37

Lack of Progress in Eurozone Crisis Resolution: The Failure to Use Substantive Consolidation 40

Summary 41

Chapter 4 The Substantive Characteristics of Securities 43

Types of Securities for Analytic Purposes 44

Control versus Non-Control Securities 44

Control and Non-Control Pricing and Arbitrage 45

Terms of Securities as Options 49

What a Security is Depends on Where You Sit 50

Summary 55

Chapter 5 Primacy of the Income Account or Wealth Creation? What are Earnings, Anyway? 57

Wealth or Earnings? 59

Influence of Reported Earnings on Common Stock Prices 61

The Long-Term Earnings Record 63

Parsing the Income Account 64

Summary 68

Chapter 6 Net Asset Value: The Static and Dynamic Views 69

The Graham and Dodd View on NAV 71

The Financial Accounting View on NAV 72

Our View on NAV 73

The Usefulness of NAV in Security Analysis 75

The Importance of NAV Dynamics 78

NAV as One Measure of Resources 83

NAV as One Measure of Potential Liquidity 84

Limitations of NAV in Security Analyses 89

Large Premiums over Book Value Always Mean High P/E Ratios: It Depends on ROE 93

Net Nets Redefined 94

OPMI Investing in Companies with Growing NAVs 96

Summary 101

Chapter 7 Creditworthiness 103

Creditworthiness from the Borrowing Entity Point of View 105

Capital Structure 107

Capital Structure from the Corporate Perspective 107

Factors Affecting Capital Structure 112

Conservative Capital Structures 117

Summary 118

Chapter 8 What Matters is Investment Risk 119

There is No General Risk-Only Specific Risk 120

The Components of Investment Risk 122

Successful People Avoid Investment Risk 123

Methods to Avoid Investment Risk 125

Safe and Cheap Investing and Minimizing Investment Risk 127

Summary 130

Chapter 9 Shareholder Distributions from the Company Point of View 131

Cash Dividends or Retained Earnings 132

Stock Dividends 135

Stock Repurchases 138

Distribution of Assets Other than Cash 141

Liquidation 141

Summary 142

Chapter 10 Roles of Cash Dividends in Security Analysis and Portfolio Management 143

The Three Conventional Theories 145

Cash Dividends as a Factor in Market Performance 149

The Placebo Effect of Cash Dividends 151

Cash Dividends and Portfolio Management 151

Cash Dividends and Legal Lists 154

Cash Dividends and Bailouts 154

The Goals of Securities Holders 156

Summary 157

Chapter 11 The Appraisal of Managements and Growth: GARP versus GADCP 159

New Framework for the Appraisal of Managements 160

Managements Attuned to OPMI Interests 161

Managements as Resource Converters 162

Tradeoffs 165

Growth: GARP versus GADCP 166

Growth at a Reasonable Price (GARP) 167

Growth at Dirt Cheap Prices (GADCP) 168

Summary 170

**Chapter 12 The Signi…