No. of Recommendations: 30
what are, in your opinion, the most recommended books on stock valuation?Not as many as you might think.
Though it is not really that great a book in some ways, one that really changed my way of thinking about valuing a firm is
"Value Investing from Graham to Buffett and Beyond", by Greenwald et al, which recaps some of the content of the Columbia value investing course.
Comments here
http://www.datahelper.com/mi/search.phtml?nofool=y...Long story short, it made me appreciate how incredibly rare moats are, and how the valuation of those firms is different from the valuation of "normal" firms.
This led me to understand why a boring ordinary non-special firm is often worth only the replacement value of its assets (roughly approximated by book), not the earnings power value.
This led me to change the way I categorize companies, summed up in this old post of mine from 2010:
http://www.datahelper.com/mi/search.phtml?nofool=y...When valuing firms, I like the approach that breaks it down as follows:
(1) A firm you're not absolutely 100% sure is a going concern: value at net liquidation value.
(2) Going concern subject to competition: value at replacement cost of assets no matter how profitable at the moment.
(3) Going concern subject to high cost of competitive entry: value at cost of competitive entry.
(4) Going concern subject to barrier to entry: value on earnings power value.
(5) Going concern subject to barrier to entry and able to invest large amounts
of new capital within the same moat: value on earnings power value plus a bonus for growth.
(6) As above, but with no foreseeable obsolescence or tail risk: just buy that sucker if it isn't a crazy price.
Rather than a long list of books, I've occasionally wrote down my thoughts of how I distilled what I read about valuing businesses.
Maybe interesting, maybe not.
The distinction here is #3 and #4, the difference between a high cost of
competitive entry and a true barrier to entry. No matter how big
the cheque you write, there are a few firms you couldn't pull even with.
Carmax isn't one of those. But, it might be (at best) one with a high
cost of competitive entry. Lots of good firms in that category.A follow-on post from that one, sort of a PS:
http://www.datahelper.com/mi/search.phtml?nofool=y...And another post discussing the same distinctions
http://www.datahelper.com/mi/search.phtml?nofool=y...Tangentially related posts, my definition of a moat
http://www.datahelper.com/mi/search.phtml?nofool=y...http://www.datahelper.com/mi/search.phtml?nofool=y......how to sift through companies looking for one that is a keeper
http://www.datahelper.com/mi/search.phtml?nofool=y......and how to spot when a moat is drying up
http://www.datahelper.com/mi/search.phtml?nofool=y...Jim
