Expectations Investing: Reading Stock Prices for Better Returns, Revised and Updated (Heilbrunn Center for Graham and Dodd Investing Series)

This is the revised edition. I own the first version and loved it. The second edition is equally good with new case studies. There are some significant changes which I found important.I must say reading the first version was the revelation for me and it changed my investment process and thinking in many ways. I learnt to invert the investment process from the price backward and see what is baked into the price. and what not. Simple concept but has profound impact on your investing.

Font size is very small could have been 2 points bigger and would have been very good.Still reading the book, will post the review when completed

Micky has not lived up to the reputation of his earlier books. Too much philosophy with little practical insight. Wake up Micky and write something worthy of your earlier potential otherwise you might become a 'had been author.

The seller DIONNE BOOKS should be removed by AMAZON and sued for PIRACY.Will Return the copy. DO NOT buy from DIONNE BOOKS.

Fake product

Investing books start sounding very repetitive after you read a dozen of them. They rely on the same set of arguments while providing different examples to argument in favor of that, frequently oversimplifying the complexity and uncertainty regarding being a successful investor. Not rarely they are unusually verbose as well. This book, however, not only successfully summarizes all key frameworks to think about investing but admits readily to the uncertainty that plagues such process, while being very concise. It’s the best single source for anyone trying to get a coherent way of thinking about investing. I cannot recommend this book enough, either for seasoned professionals or interested “amateurs”The central argument, which Mr. Mauboussin insists on remaining very grounded to, is that what determines how much a business is worth is its capacity of generating returns for every dollar invested, preferably while growing, above its cost of capital. If you invest in public securities, there is another layer of complexity here: how much expectation regarding the future path of profitability is embedded in the prices quote on stock exchanges. If you are an investor, you cannot generate returns by simply investing in a great business: you must buy it at a price that is coherent with the capacity of the business to generate such returns. More so, you should look for assets that where the price is indicating a substantially lower path of returns than what you believe the business can deliver. Such arguments are rather simple but is not rare for investors and writers to lose grasp of these simple premises. Always returning to such core tenants, the book shows a handful of frameworks on how to evaluate both the prospects of the assets to generate returns above cost of capital, how this can change in time (for better or worse) and, more importantly, how to assess how much of this is already priced by the market.I’ve been following everything Mr. Mauboussin has written throughout the years and cannot summarize the dozens of insights he has managed to provide me. All that is contained in this book has been mentioned in one form or another in his many papers, but his ability alone to condense all in a handy “manual” of sorts deserves praise. His ability to discuss and frame all the complexity around investing in simple terms while not oversimplifying, however, is what sets this book in a whole other league.

Expectations Investing has two audiences: for a business school finance student, it’s a “how to” book. For an individual investor, it’s a “how to think about the markets” book. The book provides a deep analysis of free cash flow, the underlying basis of stock valuation. The basic approach is to compute how many years of free cash flow growth are embedded in the current market price of a stock, using a discounted cash flow analysis. As the authors observe, this is in contrast to the conventional practice of discounting a fixed growth period of five or ten years. The benefit of the conventional approach is that it facilitates comparisons between companies; the authors’ approach focusses on a detailed analysis of the company under review. The two approaches are not in conflict: the conventional approach can be used to screen for candidates, with those that look promising selected for the more intensive focus detailed in the book.The book provides considerable insight into the strategies management can use to enhance free cash flow beyond the basic requirement of having a good product. I found these examples, which are backed up by the math, to be very helpful.The authors present two case studies of their analytical methodology, leaving to the reader the job of deciding based on the presentation whether an investment is warranted. The first of these, Domino’s Pizza, certainly had solid credentials. Out of curiosity I compared an investment in Domino’s with Yum Brands, the owner of its chief competitor, Pizza Hut, and McDonalds, the largest fast food chain. The case study is as of August 2020. The results from September 1, 2020 to July 22, 2022 show Domino’s with a slight loss, while Yum had an annual return of about 14% and McDonalds, 11.75%. For reference, the S&P 500 annual return for this period was about 8.25%.The second case study is of one of the highest fliers of the last few years, Shopify. Deconstructing the market price using even the most optimistic growth estimates still left a value gap, which for extreme growth companies can be analyzed according to the authors by using an option pricing model. Even this approach did not create enough value to justify the market price. The study was as of October, 2020. From November 1, 2020 through the end of 2021 Shopify produced positive returns but crashed in 2022 not only because of general market conditions but a decline in its free cash flow production. Overall its annual return was negative 40% through July 22, 2022.I was certainly surprised by Domino’s performance. At the time of the study, both McDonalds and Yum prices were “cheaper” than Domino’s in having a lower implied number of years of growth (or a lower growth rate) so I suppose the lesson to be drawn is that one should carefully look at bargain alternatives. The Shopify result is not surprising. At its price in 2020 it was a classic bubble. Nor is it surprising that it continued to gain in price through 2021: bubbles persist beyond any analytical framework. The lesson to be drawn is to stay away from bubbles.

The author starts with the current stock price, and through analysis, the investor determines if the cash flow calculated makes the stock oversold, overbought or fairly valued. I have not tested it as I am still reading the book but the concept is interesting.A knowledge of some accounting concepts would be helpful in reading this book.

The idea itself to use the main drivers of a business to evaluate which revisions could be the main driver or devil for stock prices is interesting. Some topics like the key drivers offer some interesting new ideas.But, in fact, this book is much too long and the content doesn't offer a good narrative. It seems a lil chaotic, repetitive and not that reflected upon.As a source for inspiration and for a new modeling technique, this book might be of interest. But it will definitely will not be a guide that I will use for my portfolio decisions.

Livro muito bom, para quem gosta de investimento e analisar preço da ação.