Contents
ACCESS TO CAPITAL MARKETS AND WEALTH CREATION
THE AVOIDANCE OF INVESTMENT RISK
YOU NEED A LOT MORE THAN KNOWLEDGE OF ALGEBRA AND THE ENGLISH LANGUAGE TO UNDERSTAND OUR APPROACH.
OTHER TOPICS WE COVER IN THE BOOK
Part One: The Foundations of Modern Business and Security Analysis
Chapter 1: The Scope of Fundamental Finance, Investing, and the Investor Landscape
Chapter 2: A Short Introduction to the Going Concern and Resource Conversion Views of Businesses
Chapter 3: Substantive Consolidation and Structural Subordination
SUBSTANTIVE CONSOLIDATION NOT OF PRIME IMPORTANCE
THE ACCOUNTING FOR STOCK OPTIONS CONTROVERSY IN LIGHT OF THE SUBSTANTIVE CONSOLIDATION DOCTRINE
STRUCTURAL SUBORDINATION NOT A SIGNIFICANT FACTOR
LACK OF PROGRESS IN EUROZONE CRISIS RESOLUTION: THE FAILURE TO USE SUBSTANTIVE CONSOLIDATION
Chapter 4: The Substantive Characteristics of Securities
TYPES OF SECURITIES FOR ANALYTIC PURPOSES
CONTROL VERSUS NON-CONTROL SECURITIES
CONTROL AND NON-CONTROL PRICING AND ARBITRAGE
TERMS OF SECURITIES AS OPTIONS
WHAT A SECURITY IS DEPENDS ON WHERE YOU SIT
Chapter 5: Primacy of the Income Account or Wealth Creation? What Are Earnings, Anyway?
INFLUENCE OF REPORTED EARNINGS ON COMMON STOCK PRICES
Chapter 6: Net Asset Value: The Static and Dynamic Views
THE GRAHAM AND DODD VIEW ON NAV
THE FINANCIAL ACCOUNTING VIEW ON NAV
THE USEFULNESS OF NAV IN SECURITY ANALYSIS
THE IMPORTANCE OF NAV DYNAMICS
NAV AS ONE MEASURE OF RESOURCES
NAV AS ONE MEASURE OF POTENTIAL LIQUIDITY
LIMITATIONS OF NAV IN SECURITY ANALYSES
LARGE PREMIUMS OVER BOOK VALUE USUALLY MEAN HIGH P/E RATIOS: IT DEPENDS ON ROE
OPMI INVESTING IN COMPANIES WITH GROWING NAVS
CREDITWORTHINESS FROM THE BORROWING ENTITY POINT OF VIEW
CAPITAL STRUCTURE FROM THE CORPORATE PERSPECTIVE
FACTORS AFFECTING CAPITAL STRUCTURE
CONSERVATIVE CAPITAL STRUCTURES
Chapter 8: What Matters Is Investment Risk
THERE IS NO GENERAL RISK—ONLY SPECIFIC RISK
THE COMPONENTS OF INVESTMENT RISK
SUCCESSFUL PEOPLE AVOID INVESTMENT RISK
METHODS TO AVOID INVESTMENT RISK
SAFE AND CHEAP INVESTING AND MINIMIZING INVESTMENT RISK
Chapter 9: Shareholder Distributions from the Company Point of View
CASH DIVIDENDS OR RETAINED EARNINGS
DISTRIBUTION OF ASSETS OTHER THAN CASH
Chapter 10: Roles of Cash Dividends in Security Analysis and Portfolio Management
THE THREE CONVENTIONAL THEORIES
CASH DIVIDENDS AS A FACTOR IN MARKET PERFORMANCE
THE PLACEBO EFFECT OF CASH DIVIDENDS
CASH DIVIDENDS AND PORTFOLIO MANAGEMENT
CASH DIVIDENDS AND LEGAL LISTS
THE GOALS OF SECURITIES HOLDERS
Chapter 11: The Appraisal of Managements and Growth: GARP versus GADCP
NEW FRAMEWORK FOR THE APPRAISAL OF MANAGEMENTS
MANAGEMENTS ATTUNED TO OPMI INTERESTS
MANAGEMENTS AS RESOURCE CONVERTERS
GROWTH AT A REASONABLE PRICE (GARP)
GROWTH AT DIRT CHEAP PRICES (GADCP)
Chapter 12: The Significance (or Lack of Significance) of Market Performance
MARKET PERFORMANCE AND THE CHARACTER OF A PORTFOLIO
MARKET PERFORMANCE OF PORTFOLIOS VERSUS INDIVIDUAL SECURITIES
OUTSIDERS, INSIDERS, AND MARKET PRICE
PROFESSIONAL MONEY MANAGERS AND BEATING THE MARKET
PERSPECTIVE ON BAILOUTS AND THE SIGNIFICANCE OF MARKET PERFORMANCE
Chapter 13: How Much Diversification?
PORTFOLIO DIVERSIFICATION VERSUS SECURITIES CONCENTRATION
CORPORATE DIVERSIFICATION VERSUS CONCENTRATION
Chapter 14: Toward a General Theory of Market Efficiency
THE DETERMINANTS OF MARKET EFFICIENCY
EXTERNAL FORCES INFLUENCING MARKETS EXPLAINED
GREAT ECONOMISTS CAN LEARN A LOT FROM VALUE INVESTORS
MARKETS WHERE EXTERNAL DISCIPLINES SEEM TO BE LACKING
MARKET EFFICIENCY AND FAIR PRICES IN TAKEOVERS
Part Two: Putting It All Together: Safe and Cheap Investing versus Conventional Approaches
Chapter 15: Safe and Cheap Investing
BENEFITS OF THE SAFE AND CHEAP APPROACH FOR THE OPMI
RESTRICTIONS AND DEMANDS OF THE SAFE AND CHEAP APPROACH
Chapter 16: Graham and Dodd Placed in Context
THE OPMI PERSPECTIVE OF ANALYSIS
THE GOING CONCERN AND INVESTMENT COMPANY VIEWS OF BUSINESSES
PRIMACY OF THE INCOME ACCOUNT AND WEALTH CREATION
PRIMACY OF THE INCOME ACCOUNT, DIVIDENDS, AND CORPORATE USES OF CASH
PRIMACY OF THE INCOME ACCOUNT AND THE APPRAISAL OF MANAGEMENTS
PRIMACY OF THE INCOME ACCOUNT AND TOP-DOWN VERSUS BOTTOM-UP ANALYSIS
PRIMACY OF THE INCOME ACCOUNT AND DIVERSIFICATION
PRIMACY OF THE INCOME ACCOUNT AND GROWTH STOCKS
MARKET RISK VERSUS INVESTMENT RISK AND MARGIN OF SAFETY
THE IMPORTANCE OF MARKET PERFORMANCE
USES AND LIMITATIONS OF FINANCIAL ACCOUNTING
DO STOCK MARKET PRICES REFLECT CORPORATE VALUES?
MODERN CAPITAL THEORY VERSUS GRAHAM AND DODD
Chapter 17: Academic Finance: Modern Capital Theory
EQUILIBRIUM PRICING IS UNIVERSALLY APPLICABLE
THE OUTSIDE PASSIVE MINORITY INVESTOR IS THE ONLY RELEVANT MARKET
DIVERSIFICATION IS A NECESSARY PROTECTION AGAINST UNSYSTEMATIC RISK
VALUE IS DETERMINED BY FORECASTS OF DISCOUNTED CASH FLOWS
INVESTORS ARE MONOLITHIC: THEIR UNITARY GOAL IS RISK-ADJUSTED TOTAL RETURN, EARNED CONSISTENTLY
RISK IS DEFINED AS MARKET RISK
MACRO CONSIDERATIONS ARE IMPORTANT
CREDITOR CONTROL IS A NONISSUE
TRANSACTION COSTS ARE A NONISSUE
FREE MARKETS ARE BETTER THAN REGULATED MARKETS
THE OUTSIDE PASSIVE MINORITY INVESTOR MARKET IS BETTER INFORMED THAN ANY INDIVIDUAL INVESTOR
MARKETS ARE EFFICIENT OR AT LEAST TEND TOWARD AN INSTANTANEOUS EFFICIENCY
Chapter 18: Broker-Dealer Research Departments and Conventional Money Managers
HOW RESEARCH DEPARTMENTS AND CONVENTIONAL MONEY MANAGERS THINK
PROBLEMS FACED BY RESEARCH DEPARTMENTS AND CONVENTIONAL MONEY MANAGERS
Part Three: Real-World Considerations
Chapter 19: Uses and Limitations of Financial Accounting
FINANCIAL ACCOUNTING REPORTS AS OBJECTIVE BENCHMARKS
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AS DEFINING REALITY FOR CERTAIN SPECIFIC PURPOSES
Chapter 20: Company Disclosures and Information: Following the Paper Trail in the United States
NARRATIVE DISCLOSURES IN THE UNITED STATES
THE DOCUMENTS AND HOW TO READ THEM
WHAT THE PAPER TRAIL DOES FOR THE OUTSIDE INVESTOR
WHAT THE PAPER TRAIL DOESN’T DO
Chapter 21: Buying Securities in Bulk
METHODS FOR ACQUISITION OF COMMON STOCKS
ACQUISITION OF VOTING EQUITIES THROUGH EXCHANGES OF SECURITIES
ACQUISITION OF CONTROL WITHOUT ACQUIRING SECURITIES BY USING THE PROXY MACHINERY
Part Four: Understanding Resource Conversion
Chapter 22: A Short Primer on Resource Conversion
LONG-TERM ARBITRAGE BETWEEN OPMI PRICES AND CONTROL VALUES
MORE AGGRESSIVE EMPLOYMENT OF EXISTING ASSETS
MERGER AND ACQUISITION ACTIVITY
CORPORATE CONTESTS FOR CONTROL
GOING PRIVATE AND LEVERAGED BUYOUTS
Chapter 23: Restructuring Troubled Companies
THE FIVE BASIC TRUTHS OF DISTRESS INVESTING
REHABILITATION OF TROUBLED ENTITIES
Chapter 24: The Role of Government in Reorganizations
BAILOUTS OR CAPITAL INFUSIONS?
TOO BIG TO FAIL IS A PHONY CONCEPT
THE GOVERNMENT AND PRIVATE SECTOR ARE IN PARTNERSHIP WHETHER THEY LIKE IT OR NOT
WALL STREET PROFESSIONALS AND CORPORATE EXECUTIVES ARE ALL IN THE BUSINESS OF CREATING MORAL HAZARDS
TAXPAYER BAILOUTS ARE A PHONY CONCEPT
STRICT REGULATION OF FINANCIAL INSTITUTIONS IS ABSOLUTELY NECESSARY
Part Five: Active Investors Buy and Sell Common Stocks on an Advantageous Basis
Chapter 25: The Economics of Private Equity Leveraged Buyouts
THE 2005 ACQUISITION OF HERTZ GLOBAL HOLDINGS AND SUBSEQUENT EVENTS AS A PRIME EXAMPLE
SUPER-ATTRACTIVE ACCESS TO CAPITAL MARKETS
CASH PAYMENTS TO SPONSORS AND SPONSOR-CONTROLLED FUNDS
SPONSORS ATTUNED TO THE NEEDS OF BANKERS AND THE WALL STREET UNDERWRITING COMMUNITY
Chapter 26: The Use of Creative Finance in a Corporate Takeover
Chapter 27: The Use of Creative Finance to Benefit Controlling Stockholders
THE PROBLEMS FACED IN THE SCHAEFER CORPORATION DEAL
DISCOUNT PURCHASES OF RESTRICTED CORPORATE STOCK
CORPORATION’S ACQUISITION OF BREWING
PROBLEMS AND WEALTH CREATION POTENTIALS FOR THE PARTIES IN INTEREST