ValuFocus Investing: A Cash-Loving Contrarian Way to Invest in Stocks

380 Pages·2012·2.62 MB·English

by  Rawley Thomas

ValuFocus
Investing
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ValuFocus
Investing
A Cash-Loving Contrarian
Way to Invest in Stocks
RAWLEY THOMAS
WITH
WILLIAM F. MAHONEY
John Wiley & Sons, Inc.
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LibraryofCongressCataloging-in-PublicationData:
Thomas,Rawley,1946-
Valufocusinvesting:acash-lovingcontrarianwaytoinvestinstocks/RawleyThomaswith
WilliamF.Mahoney.
p.cm.–(Wileyfinanceseries)
Includesindex.
Includesindex.
ISBN978-1-118-25007-5(cloth);ISBN978-1-118-28324-0(ebk);
ISBN978-1-118-28439-1(ebk);ISBN978-1-118-28623-4(ebk)
1.Stock–Prices.2.Valueinvesting.3.Corporation–Valuation.4.Investmentanalysis.
I.Mahoney,WilliamF.II.Title.
HG4661.T492012
332.63(cid:3)22–dc23
2012011620
PrintedintheUnitedStatesofAmerica.
10 9 8 7 6 5 4 3 2 1
To: Benoit Mandelbrot, Bart Madden,
The LCRT Brain Trust, The PDDARI Gang
and my Family
—Rawley Thomas
To: Indi, Carroll, Deb and my Family
—William F. Mahoney

Contents
Preface xvii
Acknowledgments xxi
SECTIONONE
TheLCRTInvestmentProcess 1
CHAPTER1
IntroducingOurInvestmentProcess 5
KeyTakeaways 8
CHAPTER2
ABetterWaytoInvestinStocks 9
PuttheFocusintheRightPlace:OnaCompany’s
FundamentalValue 9
WeBringYouanImprovedMethodology 10
BasingDecisionsonUnder-andOvervaluationbythe
Market 12
TheKey:RecognizingtheInflectionPoints 13
LookingatOurModel 14
KeyTakeaways 16
CHAPTER3
AdvantagesofEconomic,Cash-BasedModeling 17
KeyTakeaway 21
CHAPTER4
AnalyzingMentalModels 23
KeyTakeaways 26
vii
viii CONTENTS
CHAPTER5
TheValueCreationProcess 27
CostofCapitalandCompanyReturnonCapital 27
TheImportanceofAdjustingforInflation 28
WhereWeAreGoing 29
KeyTakeaways 31
CHAPTER6
TheCorporatePerspective 33
TheFocusforBothConstituencies:ValueCreation 33
EarningsAretheWrongMeasure 36
ExecutiveCompensation 38
CreatinganInformationAdvantage 41
KeyTakeaways 44
SECTIONTWO
ABriefHistoryofInvestingandModeling 45
CHAPTER7
RelevantMarketHistoryofInvesting 47
StartwithConceptsofRiskandUncertainty 48
MigratetowardValueandMarketInefficiency 49
EnterModernPortfolioTheory 50
AnEmphasisonEarnings,Plus 51
LeadingtoMultifactorModeling 51
FindingtheRightFactors 52
DissectingaMultifactorModel 53
KeyTakeaways 54
CHAPTER8
InterpretingMarketHistory 55
MarketIsDealingwithPriceChange,NotPriceLevel 56
BringingHistoryUptoNow 59
BacktoEarnings:WhyTheyStillPrevail 60
KeyTakeaways 62