Getting Started in Security Analysis

342 Pages·2009·3.12 MB·English

by  Klein, Peter J.

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Getting Started in
SECURITY
ANALYSIS
S E C O N D E D I T I O N
Peter J. Klein
with Brian R. Iammartino
John Wiley & Sons, Inc.
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Copyright © 1998, 2010 by Peter J. Klein. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any
form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise,
except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without
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Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best
efforts in preparing this book, they make no representations or warranties with respect to the
accuracy or completeness of the contents of this book and specifically disclaim any implied
warranties of merchantability or fitness for a particular purpose. No warranty may be created or
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herein may not be suitable for your situation. You should consult with a professional where
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Library of Congress Cataloging-in-Publication Data:
Klein, Peter J.
Getting started in security analysis / Peter J. Klein with Brian R. Iammartino.—2nd ed.
p. cm.—(The getting started in series)
Includes bibliographical references and index.
ISBN 978-0-470-46339-0 (pbk.)
1. Investment analysis. 2. Securities. 3. Portfolio management. I. Iammartino, Brian R.,
1978- II. Title. III. Title: Security analysis.
HG4529.K565 2009
332.63(cid:2)2—dc22
2009025141
Printed in the United States of America
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For my son,
Jack Patrick Walsh Klein
Cui multum datum est multum quaeretur ab eo
— PJK
For my parents, Nick and Eileen Iammartino,
who helped make this possible,
and for my wife, Meredith Hamilton,
who helped make it happen
— BRI
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Contents
Acknowledgments vii
Introduction 1
PART 1
Tools of the Trade
Chapter 1
Accounting 17
Chapter 2
Economics 35
Chapter 3
Investment Mathematics 77
Chapter 4
Quantitative Analysis 97
PART 2
Fundamental Financial Security Analysis
Chapter 5
Equity Analysis and Valuation 119
Chapter 6
Credit Analysis 169
v
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vi CONTENTS
Chapter 7
Real Estate 203
PART 3
Portfolio Management
Chapter 8
The Investment Management Process 261
Epilogue 307
Appendix:Selected Tables 309
Bibliography 315
Index 317
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Acknowledgments
T
here have been many colleagues that I would like to thank—
those who served as a sounding board, de facto editors, and cheer-
leaders—who kept me going through this project. Primary among
these is Brian Iammartino, without whose insights, indefatigable work
ethic, and financial acumen this work would have suffered greatly.
Watching Brian “grow up” over the last 15 years has been a thrill and I
expect great things coming from his mind (and pen) over the next several
years. Additionally, one could never ask for a better “partner” than Jane
Voorhees—truly the best in the business. Also, the following have been in-
strumental in this work, as well as in my practice’s day-to-day “financial
thinking”: Stacey Tucker and Robert Limmer of UBS Wealth Manage-
ment, Adam J. Gottlieb of Ruskin Moscou Faltischek, PC, and John
Curran of Tigris Financial.
Clients and business associates are also a valuable resource in an un-
dertaking such as this; they often provide insights that others, especially
those “in the business,” may overlook. I would especially like to thank
Dr. Robert Ross—the quintessential entrepreneur, and founder of the
Ross University Medical School, Veterinary School and School of Nursing.
Additionally, Don Hill of Sherman, Connecticut has been an invaluable
resource over many years, as has been the Rosen family—Robert, Flo-
rence, and David—thank you for your efforts and enlightening debates.
Jerry Sloane of Berdon LLP was instrumental in guiding me in many dif-
ferent areas, especially accounting, which is his profession. The late Claire
Friedlander deserves special thanks for her never-ending trust and appre-
ciation for my work. Though she is missed each day, her memory and
legacy will live on for decades to come—thank you Claire—I miss you.
The following have also “served bravely in the field of duty”—putting up
with my verbose e-mails and constant debates about the economy and
markets: Barbara Weisen, Susan Monosson, Wendy Wiesel, Sam Reiner,
Dr. & Mrs. Paul Brandoff, Bob Singer, Ronald J. Morey, Jed Morey,
Howard Maier, John Catsimatidis, Danny Frank, Paul Watson, Jules Weiss,
Peter and Susan Furth, Dr. Harvey Stern, Dr. and Mrs. Jack Giannola,
vii