The Business of Value Investing: Six Essential Elements to Buying Companies Like Warren Buffett

291 Pages·2009·1.86 MB·English

by  Sham M. Gad

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The Business of
Value Investing
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The Business of
Value Investing
SIX ESSENTIAL ELEMENTS TO BUYING
COMPANIES LIKE WARREN BUFFETT
Sham Gad
John Wiley & Sons, Inc.
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Copyright © 2009 by Sham Gad. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data
Gad, Hesham, 1978—
The business of value investing: six essential elements to buying companies like Warren
Buffett / Sham Gad.
p. cm.
Includes index.
ISBN 978-0-470-44448-1
1. Value investing. 2. Corporations-Valuation. 3. Stocks. I Title.
HG4521.G16 2010
332.63'22—dc22
2009025052
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
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To my mom and dad,
Seham and Moustafa Gad, and my wife,
Maggie Allen Gad.
You are the best.
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Contents
Acknowledgments xiii
Introduction xvii
Chapter 1 Invest in the Business, Buy the Stock 1
Stock Prices Are More Noise Than
Information 4
A Businesslike Approach to Valuing
the Business 6
The Making of a Legend 11
A Simple Idea, Really 14
Chapter 2 The Only Three Types of Investments You
Need to Know 15
Stocks Prices Aren’t Always Rational 16
The Business Side of Investing 17
Three Buckets: Undervalued, Overvalued,
and Fairly Valued 21
Price Determines Value 24
Key Takeaways 31
vii
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viii Contents
Chapter 3 The Six Elements of Intelligent Investing 33
All Investing Is Value Investing 35
Learn from the Masters 38
The Sum of Its Parts: A Fundamental
Framework 39
A Mental Latticework 42
Overview of the Six Elements 43
Emphasize the Process, Not the Outcome 46
Key Takeaways 46
Chapter 4 Establish a Sound Investment Philosophy
The First Element 47
Preservation of Capital Is the Name
of the Game 49
Price Paid Determines Value Received 52
The Starting Point Matters 54
Avoid Using Margin 61
Focus on Absolute Returns 64
Key Takeaways 66
Chapter 5 Develop a Search Strategy
The Second Element 67
Ignore the Media 69
Imitation Is the Sincerest Form of Flattery 72
Basic Search Strategies 75
Advanced Search Strategy 85
Key Takeaways 89
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