Table of Contents

Foreword ix About the author xi Acknowledgements xiii Part I: The limits of reason 1 0.9 Start thinking for yourself 3 1. The Pied Piper 9 2. The art of prediction 21 3. Why economics will never be a science 29 4. Forecasting the stock market 35 5. Does the stock market forecast the economy? 49 6. Can charts predict? 55 7. Market timing 65 8. Are computers the answer? 85 9. The efficient market hypothesis 97 10. Trader or investor? 107 11. Realistic expectations of returns 119 Part II: Stock screens and value metrics 125 12. Where to start: stock screen or triad of analysis? 127 13. Don't accept the PE ratio at face value 135 14. Earnings growth isn't always a good thing 145 15. Why do price to book ratios vary? 153 16. Selecting stocks by dividend yield 159 Part III: The genesis of stock valuation 167 17. It all started in Europe 169 18. Time to cross the Atlantic 185 19. The adoption of financial reporting 199 20. The modern era 209 Part IV: 'Calculating' value 215 21. Intrinsic value and market price 217 22. Earnings and earnings growth 231 23. The discount rate 245 24. The formulae 265 Part V: Beating the stock market 277 25. The Durant-Dort Carriage Company 279 26. Searching for numeric constants 283 27. The human constant 291 28. Coin-flipping orang-utans (my first trips to Omaha) 297 Appendix A: Why book value differs from economic value 309 Appendix B: Debt analysis 311 Glossary 317 References 321 Bibliography 331 Index 337

About the Author

MICHAEL KEMP has worked as a corporate financier in Australia and overseas. He is the author of Creating Real Wealth.