Klein, Peter J. Getting started in security analysis / Peter J.
Klein with Brian R. Iammartino. —2nd ed. - 2009, 339p. Printed in
the United States of America
Contents
Acknowledgments vii
Introduction
PART 1
Tools of the Trade
Accounting
Economics
Investment Mathematics
Quantitative Analysis
PART 2
Fundamental Financial Security Analysis
Equity Analysis and Valuation
Credit Analysis
Real Estate
PART 3
Portfolio Management
The Investment Management Process
Epilogue
Appendix: Selected Tables
Bibliography
Index
As you will read this book, it should become obvious that investment analysis and its related extensions are rigorous enough to be taken as an actual science.
Like other scientific disciplines, investment analysis requires a working
knowledge of its basic concepts. Part 1, Tools of the Trade, explores
these concepts, with considerable emphasis on exercises that hone awareness,
expertise, and understanding of this once arcane subject. A century
ago, the task of investment counseling belonged to men of prudence
who, for fear of being wrong, usually invested funds with guaranteed retus
and did not rely on scientific discipline. The fear of not being beyond
reproach—otherwise known as reputation fear—provided
enough guidance for these men. Typically the wealthy and elite, they did
not see the utility of investment analysis for the simple reason that they
did not have to—they were already rich.
Today, investment analysis plays a meaningful role in planning for a
comfortable financial future. This book provides the reader with a firm
foothold on this important subject (although the basic concepts may prove
helpful in many of life’s other exercises). Mastery of investment analysis
takes much more than a cursory read through this text; it requires years of
study and perhaps decades of practical experience. Our hope is to provide
today’s investor—novice or seasoned—with enough understanding tosimulate the workings of Wall Street analysts. An investor, after reading
this manual, will have a fundamental store of financial information; will
understand the terms, pricing, and research of a financial services
provider; and will find the daily financial papers more interesting.
Many investors are well aware of the basics of financial planning
through exposure to myriad seminars, books, magazines, and web sites.
They need the next level of information. Just think about how many of
your friends understand the risk-retu trade-off (more risk, more retu),
asset allocation (spreading assets around into many classes), and
the need for long-term investing habits. But how many wish they understood
how a company’s shares are valued, or how the workings of regression
analysis and the typical economic releases in a given month directly
affect the value of their investments? Part 1 is designed to provide this
essential background.
Part 2, Fundamental Financial Security Analysis, sets forth the
notion that the tools described in Part 1 can be of practical use only if the
investor understands how a given company is valued. Thus in this part,
we explain the methodology behind the valuation techniques of a company’s
equity and debt securities:
With tomes of data available, how should we quantify the
value of this company? Which calculations must be executed
to ascertain the true value of this company?
Consequently, these valuation techniques build on the lessons of Part 1.
Without a firm understanding of the tools analysts use, it is impossible
to firmly grasp the true valuation process.
Part 3, Portfolio Management, is a discussion of the investment
management process—the symbiosis of the tools and valuation techniques
with the financial planning process. It includes an examination of
the laws and regulations that gove this highly regulated industry. To
fully grasp these legal constraints, today’s serious investor must understand
and be able to use the investment management process.
Contents
Acknowledgments vii
Introduction
PART 1
Tools of the Trade
Accounting
Economics
Investment Mathematics
Quantitative Analysis
PART 2
Fundamental Financial Security Analysis
Equity Analysis and Valuation
Credit Analysis
Real Estate
PART 3
Portfolio Management
The Investment Management Process
Epilogue
Appendix: Selected Tables
Bibliography
Index
As you will read this book, it should become obvious that investment analysis and its related extensions are rigorous enough to be taken as an actual science.
Like other scientific disciplines, investment analysis requires a working
knowledge of its basic concepts. Part 1, Tools of the Trade, explores
these concepts, with considerable emphasis on exercises that hone awareness,
expertise, and understanding of this once arcane subject. A century
ago, the task of investment counseling belonged to men of prudence
who, for fear of being wrong, usually invested funds with guaranteed retus
and did not rely on scientific discipline. The fear of not being beyond
reproach—otherwise known as reputation fear—provided
enough guidance for these men. Typically the wealthy and elite, they did
not see the utility of investment analysis for the simple reason that they
did not have to—they were already rich.
Today, investment analysis plays a meaningful role in planning for a
comfortable financial future. This book provides the reader with a firm
foothold on this important subject (although the basic concepts may prove
helpful in many of life’s other exercises). Mastery of investment analysis
takes much more than a cursory read through this text; it requires years of
study and perhaps decades of practical experience. Our hope is to provide
today’s investor—novice or seasoned—with enough understanding tosimulate the workings of Wall Street analysts. An investor, after reading
this manual, will have a fundamental store of financial information; will
understand the terms, pricing, and research of a financial services
provider; and will find the daily financial papers more interesting.
Many investors are well aware of the basics of financial planning
through exposure to myriad seminars, books, magazines, and web sites.
They need the next level of information. Just think about how many of
your friends understand the risk-retu trade-off (more risk, more retu),
asset allocation (spreading assets around into many classes), and
the need for long-term investing habits. But how many wish they understood
how a company’s shares are valued, or how the workings of regression
analysis and the typical economic releases in a given month directly
affect the value of their investments? Part 1 is designed to provide this
essential background.
Part 2, Fundamental Financial Security Analysis, sets forth the
notion that the tools described in Part 1 can be of practical use only if the
investor understands how a given company is valued. Thus in this part,
we explain the methodology behind the valuation techniques of a company’s
equity and debt securities:
With tomes of data available, how should we quantify the
value of this company? Which calculations must be executed
to ascertain the true value of this company?
Consequently, these valuation techniques build on the lessons of Part 1.
Without a firm understanding of the tools analysts use, it is impossible
to firmly grasp the true valuation process.
Part 3, Portfolio Management, is a discussion of the investment
management process—the symbiosis of the tools and valuation techniques
with the financial planning process. It includes an examination of
the laws and regulations that gove this highly regulated industry. To
fully grasp these legal constraints, today’s serious investor must understand
and be able to use the investment management process.