What are the best books on stock valuation?
Stock valuation is a method to calculate the value of a business and its stock. Knowing what your stock is worth may dictate how you will invest and even make managerial decisions. The best books on stock valuation is a list that attempts to compile some of the industry standards on the concept of stock valuation. Names like Aswath Damodaran and others teach deep and complex topics, yet give you an understanding that you need to understand the basics.
Best Books on STOCK VALUATION: THE LIST
1 – The Little Book of Value Investing | By Christopher Browne
Without giving any false hope, Christopher H. Browne succeeds in presenting the central ideas of the stock market investment in an uncomplicated and straightforward manner. You will see that the process of stock market investing is not that difficult as he compares it to as simple as shopping for groceries, giving the readers an entirely new perspective of it. He also provided instructions on how to take advantage of online stock screening tools and P/E ratios. In The Little Book of Value Investing, investors are encouraged to their due diligence before they expect a positive return. Brown stressed that the aggressive trading approach is not always the best course of action. Instead, there are scenarios where doing nothing reaps the better result.
Quotes from the book;
“The beauty of value investing is its logical simplicity. It is based on two principles: What’s it worth (intrinsic value), and don’t lose money (margin of safety).”
“Such opportunities do not come on the heels of great times; they are preceded by much pain.”
“Most people tend to look at…everything they buy with an eye on the value they get for the price.”
“When prices drop, they buy more of the things they want and need. Except in the stock market.”
2 – Valuation | By Kenneth Ferris and Barbara Pecherot Petitt
Writers Kenneth R. Ferris and Barbara S. Pecherot Petitt offer compelling examples of businesses that overcompensated disastrously for acquisitions. They further examine why these companies ended up failing and what other alternatives they could have done to avoid such an outcome. The writers concluded that these companies ended with unfortunate faith because of their lack of assessments. That is why, in Valuation: Avoiding the Winner’s Curse, they also provide complete recommendations and cautionary notes about when and how to utilize different valuation, assessment models. They believe that by doing so, companies will be equipped with the right assessment reports as a basis for decision making, which may make or break their success.
Quotes from the book;
“The fundamental tenet of investment valuation is well-established in corporate finance: The value of an asset today is the present value of the future cash flows that the asset is expected to provide its owners.”
“In essence, in about one of every two mergers or acquisitions, the acquirer management commits some type of critical error – in the assessment of target-firm value, in the bidding process or in the postacquisition integration of the acquiree.”
“Divergent revenue recognition practices may be a considerable source of bias in accounting data.”
“Although much is made about selecting an appropriate valuation multiple or discount rate, nothing is more important in assessing firm value than a complete and accurate modeling of a target’s operations.”
3 – The Streetsmart Guide to Valuing a Stock | By Gary Gray, Patrick Cusatis, and J. Randall Woolridge
All that you need to comprehend regarding how to assess a stock is included in The Streetsmart Guide to Valuating a Stock: The Savvy Investor’s Key to Beating the Market. However, understanding it can be a problem as it appears that the writers used a unique system in arranging their chapters. For instance, in order for you to follow a concept in Chapter Two, you have to skip reading to chapter Five. However, once you get the hang of the arrangement, this book can become one of your most helpful resources when it comes to identifying the value of stocks. The glossaries incorporated within the end of each chapter are easy to read and follow.
Quotes from the book;
“Many corporations appear to be overly concerned with managing their EPS (earnings per share) growth through accounting gimmicks to achieve or exceed the expectations of Wall Street.”
“It’s a lot easier for a CEO to talk about revenue and earnings growth than it is to develop the products and strategies to accomplish that growth.”
“The value of a stock – like the value of any other financial instrument – is equal to the discounted value of its expected cash flows, adjusted for risk and timing.”
On any corporate investment, a corporation creates additional value for stockholders if and only if it earns a rate of return, after all net cash flow adjustments, that is greater than the corporation’s weighted average cost of capital.”
4- The Little Book of Valuation| By Aswath Damodaran
It is authored by Aswath Damodaran, a most respected valuation expert of today’s generation. Word by word, Damodaran refines the basics of valuation, explains every critical concept needed to be covered, and expands theories that can effortlessly be understood and applied. In this process, he incorporates different valuation methods from natural or diminished cash flow appraisal and multiples or contingent assessment to some components of existing choices valuation. It covers case studies and illustrations that will assist in increasing your valuation abilities. The Little Book of Valuation: How to Value a Company also consists of an iVal, which is an iPhone application that advances the teachings of the book.
Quotes from the book;
“THE BEAUTY OF VALUE INVESTING is its logical simplicity. It is based on two principles: What’s it worth (intrinsic value), and don’t lose money (margin of safety).”
“Most investors choose not to value companies and offer a variety of excuses: valuation models are too complex, there is insufficient information, or there is too much uncertainty.”
“When stocks were first traded in the sixteen and seventeenth centuries, there was little access to information and few ways of processing that limited information. Only the very wealthy invested in stocks, and even they were susceptible to scams.”
“Do not let experts and investment professionals intimidate you. All too often, they are using the same information that you are and their understanding of valuation is no deeper than yours.”
5- Stock Valuation | By Scott Hoover
Scott Hoover provides a realistic overview of the valuation principles adopted by Wall Street. Detect underpriced stocks prior to your competitors. Triumphant investments are about overcoming market standards. To achieve this, you require to comprehend how to distinguish, assess, and finance in mispriced stocks. This book equips you with the first-hand review of Wall Street’s several extensively followed valuation standards, concentrating on the technical foundations of those standards and how they operate when implemented to real trades in the market. Most of the sections covered in Stock Valuation: An Essential Guide to Wall Street’s Most Popular Valuation Models are associated with a first-hand review of the structure segments of specific valuation, implementation of a Discounted Cash Flow (DCF) model heading to the development, and several other knowledge.
Quotes from the book;
“To understand the potential for stock picking to be profitable, we must first consider how prices are formed in the marketplace.”
“The value of a stock depends on the value today of the company’s future cash flows.”
“The motivations to undertake valuation include the potential to profit from trading, the desire to establish effective economic policies, the desire to understand and better manage companies, and the need to convey accurate yet simplified information to the public.”
“One of the more difficult hurdles we need to overcome is the natural tendency to want to choose only high-quality companies. There is certainly nothing wrong with this instinct, but we do need to understand that there is a distinction between picking good companies and picking good stocks.”
6 – Stocks for the Long Run | Jeremy Siege
Many have changed since the last edition of Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies. The financial disaster, the most extensive bear economy after the Great Depression, and the endured extension of the new markets are just a few of the predicaments immediately changing each business portfolio. Jeremy Siegel has refreshed his number 1 selling book about stock market investing. This latest version explains all the critical issues of today: Ho was the future of stocks return and financial markets altered by these crises? This 5th version incorporates brand-new chapters of the financial crisis, the economy of China and India, the condition of the global market, and market valuation.
Quotes from the book;
“When the real estate market reversed direction and the prices of these securities plunged, firms that had borrowed money were thrown into a crisis that sent some into bankruptcy, others into forced mergers with stronger firms, and still others to the government for capital to ensure their survival.”
“Despite the actions taken by the Federal Reserve to moderate the economic contraction, the credit disruption that followed the Lehman bankruptcy had a devasting impact on the equity markets, which suffered their worst decline in 75 years.”
“It is especially tragic that Federal Reserve Chairman Alan Greenspan, by far the most influential public official in economic affairs, did not warn the public of the increasing risks posed by the unprecedented rise in housing prices.”
“The collapse of both the economy and the stock market in the 1930s left an indelible mark on the psyches of investors.”
7 – Financial Modeling and Valuation | By Paul Pignataro
Authored by the CEO and Founder of the well renowned New York School of Finance, this book teaches you in the primary mechanisms for precisely appraising the situation in stock investment. Formulated on a case study of Wal-Mart, it reveals to you how to conduct a thorough investigation of that business’s business position, accompanying you in all the moves of creating a complex financial strategy just like an expert Wall Street. You will assemble a complete economic design and valuation process as you go on with Financial Modeling and Valuation: A Practical Guide to Investment Banking and Private Equity. The chapters in this book include financial modeling and how to build a model that incorporates balance sheets, income statements, Depreciation schedules, etc.
Quotes from the book;
“The markets are vast and complex—not only the United States but also the global markets. Stocks, bonds, mutual funds, derivatives, options—yes, choices are endless, literally. Everyone wants to make money. Yet, throughout the past years, we have faced tremendous market swings, rendering investors (and their money) in a sea of lost hopes and few investors with a plethora of wealth.”
“It is useful to compare the value results with the company’s value based on where its stock has peaked and troughed within the last 52-week period.”
8 – Valuation | By Tim Koller, Marc Goedhard, and David Wessels
This best selling book is one of a kind book that helps financial specialists all over the world to shine at calculating, maximizing, and maintaining company value and shareholders. Valuation: Measuring and Managing the Value of Companies gives perspective on the vital assets of differences managers, value-based management, and comprehensive specific instruction, should grasp about appraisal and valuation procedures as utilized to various emerging markets, unique situations, and industries. The chapters include the intersections of finance and corporate approach. However, you need to grasp the value of business strategies to assess large transactions and make a capital structure to understand it’s content entirely.
Quotes from the book;
“If investors knew as much about a company as its managers do, maximizing its current share price might be equivalent to maximizing value over time.”
“The stock market’s volatility and the erratic pricing of some companies’ shares have raised questions about whether stock prices are actually linked to economic fundamentals.”
“Share price data for companies that report different accounting results in different stock markets provide additional evidence that stock markets do not take reported earnings at face value.”
“Diversification is still a hotly debated topic,…Yet the myths around diversification creates value by smoothing a company’s performance.”
9 – Value Trap | By Brian Nelson
This book has merited recognition from the New Generation Indie Book Awards and other notable bodies. The author, Brian Nelson, who was the President of Investment Reseach at Valuentum and prior director of Methodology at Morningstar, describes enterprise valuation makes the Theory of Universal Valuation. Value Trap: Theory of Universal Valuation consists of 365 pages which include, the Index, Bibliography, Notes, and Prefaces address some alarm trends and practices in today’s investment management. This book aims to deliver a response to the question of what is the best approach for evidence-based finance? Since obviously, experimental assumptions are not enough. This book contains a thorough review of the inconsistencies of “explaining” the behavior of stock return in factor-based investing.
Quotes from the book;
“The markets may truly have gone full circle over the past century. During the flapper years of the “Roaring ‘20s,” many investors followed the advice of Evangeline Adams.”
“Passive strategies and quantitative investing may seem like they are on the fringe, that investors aren’t paying a lot of attention to them, but this could not be further from reality.”
“Big data is, nonetheless, upon the financial world–whether the data makes sense or whether the data actually measures what researchers believe it measures.”
10 – Investment Valuation | By Aswath Damodaran
The ultimate reference of knowledge on all matters associated with investment valuation techniques and tools. Valuation is the center of any investment choice, regardless of that choice on buying, selling, or holding. However, the rates of many assets are now more complicated, especially after the contemporary financial crisis. To be victorious at this attempt, one must have a sound understanding of the techniques in valuation. This book is exemplary as it endured the growing change in students and investors of financial markets. Presently, Investment Valuation: Tools and Techniques for Determining the Value of Any Asset wholly improved and modernized to show shifting market conditions. This third version thoroughly explains to investment students and professionals the different valuation strategies accessible and which one is the right choice.
Quotes from the book;
“Every asset, financial as well as real, has a value.”
“Valuation is useful in a wide range of tasks. The role it plays, however, is different in different arenas. The following section lays out the relevance of valuation in portfolio management, in acquisition analysis, and in corporate finance.”
“Financial statements provide the fundamental information that we use to analyze and answer valuation questions.”
“When valuing assets and firms, we need to use discount rates that reflect the riskiness of the cash flows.”
“The relationship between price and book value has always attracted the attention of investors. Stocks selling for well below the book value of equity have generally been considered undervalued, while those selling for more than book value have been targeted as overvalued.”
11 – The Intelligent Investor | By Benjamin Graham
A book that must be on every investor’s bookshelf, The Intelligent Investor: The Classic Text on Value Investing is the principles that are laid out by author Benjamin Graham. These precepts and guides are so great that the best investors like Warren Buffett and John Bogle use them for their success. Graham’s book was first published in 1949, which shows signs of age in its discussions, such as interest rates, savings bonds, and other time-sensitive topics. Nevertheless, the fundamentals and counsel of Graham’s concepts and principles are timeless to all investors.
Some of the key concepts you’ll learn in this book are; that investors fall into two categories, the defensive and the enterprising; you’ll learn that speculation is not investing; to become successful, a enterprise investor must treat their investment as any other business they are in; there is no evidence that supports that market timing and market forecasting even work; diversification and the concept of margin of safety can protect portfolio investing.
Quotes from The Intelligent Investor;
“It is amazing to see how many capable businessmen try to operate in Wall Street with complete disregard of all the sound principles through which they have gained success in their own undertakings.”
“Some of these issues may prove excellent buys – a few years later when nobody wants them and they can be had at a small fraction of their true worth.”
“The intelligent investor (needs) an ability to resist the blandishments of salesmen offering new common-stock issues during bull markets.”
“Good management produces a good average market price, and bad management produces bad market prices.”
12 – Modern Investment Theory | By Robert A. Haugen
This book offers accurate and intuitive coverage of investments, with an emphasis on portfolio theory. It includes extensive discussion of capital asset pricing, arbitrage pricing, pricing of derivative securities, interest rates, and bond management. Stock valuation, estimating future earnings and dividends, and fixed income markets are examined closely. For individuals interested investing and portfolio management.
13 – Determining Value | By Richard Barker
Final year undergraduates of business, finance students, MBA and Postgraduate students of business and/or finance. It will also be of keen interest to professional practising financial analysts. This book is about the methods used to value companies. Valuation methods such as the price – earnings ratio, dividend yield and EVA are found frequently in stockholder reports and financial press and there has been an explosion of interest in ‘shareholder value’ in recent years with a corresponding need to understand how value is created and measured. The book contains both the analytical review of valuation models and also evaluation of the data available for use in valuation models. This is the first time that this information has been available in a textbook and been academically and critically evaluated.
Final Thoughts on the Best Books on Stock Valuation
This article was an attempt to consolidate the best books on stock valuation. Obviously, the list is not an exhaustive list of every book on the subject. However, the ‘best books on stock valuation’ list attempt to orchestrate different angles and degrees on stock valuation.
James is the editor-in-chief at biggerinvesting.com. James is a workaholic and an entrepreneur who has been in the tech industry for over ten years. He has worked with Microsoft, owns multiple websites, and now owns a mattress shop. Furthermore, when he has time left over, he will be in his woodworking shop building furniture as a side hustle. James has a B.S. in Business Management Information Systems and a Master’s in Business Administration from Liberty University. He is currently pursuing a Master’s in Executive Leadership, and once he completes that, he will pursue his Ph.D. in Business Administration – Entrepreneurship. James also seeks investment opportunities, putting his money to work instead of himself.