The 5 Keys to Value Investing
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| Format |
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| Pages |
256 |
| Published Date |
2013 |
The Five Keys to Value Investing is practical. Therefore, new portfolio theories and broad investment topics are not its focus. Value investors invest in companies one idea at a time—a bottom-up approach. The outcome of such activities is often the accumulation of a limited number of investment holdings that must be monitored over time. The focus of this book is on obtaining and correctly applying a specific set of tools in order to make the best and most rational decisions in investing.
Introduction:
The beginning chapter provides the foundation for the entire book. If this were a book on golf, this is where novice golfers would get the necessary training they need to understand the mental aspects of the game, learn about the different clubs, and their strengths and weaknesses. Similarly, this chapter presents the mental framework of the value investor. It focuses on emotional discipline and introduces you to the Five Keys of Value framework, while also giving you the overall foundation and philosophy of value investing. Discussed in greater detail later, the Five Keys consist of business, value, and price assessments, in addition to catalyst identification and a margin of safety determination.
The book goes on to provide descriptions of the various tools in order to help you understand whether or not a particular investment opportunity is a good company to own. The objective is to build upon your judgment, determining which tools you can use to assess the company. Once you have determined that the investment opportunity in question is in a good business, The Five Keys to Value Investing explores the delicate balance between price and value. The book helps you determine what the current stock price is based on and how much the company is actually worth. Then it bridges the gap between that price and value. Catalysts are also discussed, offering the reader ways to identify and measure the effect of events (or potential events) that will spur stock price appreciation.
The final step in the framework discussed is a description of the proper tools used to determine the individual investor’s safety level for the stock. The Five Keys of Value framework supports the notion that once an investor has identified the catalyst needed to get the stock to fair value, a margin of safety analysis (a term popularized by Benjamin Graham) is required in the event that the catalysts identified are delayed or proven ineffective to drive stock price appreciation. This is essentially the investor’s downside scenario. The margin of safety analysis is considered by many value investors to be the most important part of the entire investing process.
The Five Keys to Value Investing stresses that once you have the right tools and awareness of the emotional discipline required, no other quality is more important than one’s ability to assess properly the specific investment opportunity on the table. This book helps you assess the type of investment that you may face and gives you examples of the tools that other independent value investors have used in such situations.
Like golf, you must first observe others (or “practice”) with these tools in similar situations until you have your own “feel” for what is best for you. Two value investors can look at the same company and use different tools when determining its value, yet reach the same conclusion. Likewise, two golfers could be 100 yards from the pin with the same lie, and use different clubs to generate the same outcome. At the end of the day, you have to be comfortable with the tools you know how to use best. This book will provide you with a handful of tools, and it will help you to understand how each is used, but it will be up to you to master them.
After having the proper tools and identifying the situation correctly, it is up to you how you wish to execute. Taking action or “buying right,” and your ability and follow-through as an owner of an enterprise once you buy the stock, are essential to your investment success. This is an area that most investment books spend little time on, but as buyers of businesses, this is where a good number of value investors spend most of their time—trying to become better owners of businesses. The value investor knows that the real work begins after you purchase the shares.
The Five Keys to Value Investing concludes by providing a few suggestions on how to generate your own investment ideas, by focusing on specific methods. It provides a discussion about building your own independent portfolio consisting of a few of your best possible ideas. In summary, you will gain the following four skills that will help you prosper as a value investor.
Contents:
- The Mind of the Value Investor
- Business and Industry Assessment
- Price and Value Assessment
- Catalyst Identification and Effectiveness
- The “Margin of Safety” Principle
- Assessing the Investment Opportunity
- Buying Right and Being an Owner
- Generating Value Ideas and Building an Independent Portfolio
The 5 Keys to Value Investing By J. Dennis Jean-Jacques pdf
17 reviews for The 5 Keys to Value Investing
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Lainey Dickerson (verified owner) –
This is one of the best books on value investing. The author has used his long experience as an equity analyst. The book is a treasure of investment wisdom. This is a do it yourself book meant for individual as well as professional investors. The author has relied on investment wisdom of great investors such as Benjamin Graham, Warren Buffett, Michael Price, Seth Klarman etc. The book explains the process of value investing with ample case studies narrating how the author approached each of those investment opportunities. The chapter on Catalyst identification and effectiveness is unique. Every value investor should read this book.
Asher Vega (verified owner) –
xcellent points on EBITDA contained in this book. Overall; a very very good book with much technical information laid out in layman’s terminology. Helped me a lot. Might be a heavy read for some newbies though.
Dakota Christian (verified owner) –
If you are interested in value investing. This book is for you. I can’t help reading it over and over again in order to dig more information from the book. Invaluable and easy to understand. Read it and use it.
Richard Hail (verified owner) –
Mr. Jean-Jacques lead an insightful and meaningful discussion on value investing at the local book store. After picking up the book, it took me just three days to read it and I am glad I did. To be honest, I did not know what to expect prior to reading the book because from his discussion, Mr. Jean-Jacques came across as an extremely bright but private person. Also, I had never heard of him before. He seems to be non-promotional. However, after reading it the book spared nothing and explained the basics of value investing very well supported by very good and real-life examples. Anyone who enjoys following the stock market and value investing in particular will truly cherish this book.
Saige Kirby (verified owner) –
Just got the thing and can’t seem to put it down. This is an excellent treatise on valueing a company! Clearly will become one of the best value books of all time. Let’s give it time, as it WILL get more notice. If there was a way to give 6 stars, I would do it in a heartbeat!
Deandre Terry (verified owner) –
Interesting concepts and applicable… This book provides an interesting way to look at stocks. The author focuses on what makes the companies “tick” and outlines a few points to consider when considering buying shares of public companies. The five-point approach makes a lot of sense and can be a good foundation for an investment program. I am not sure however, if this book is for non-professionals. The author goes into detail with good examples, but he seems to forget his reader (the average, Joe… like me!). This book is a great addition to any serious investment library but I think one should read a few “beginner” books before picking this one up. This is clearly a value investing book for the experienced.
Emmeline Robertson (verified owner) –
I got this ebook “The Five Keys to Value Investing” as a graduation gift from my dad who is a longtime professional equities investor. He thought this book would be a good way for me to prep before I start my career on Wall Street. I was not disappointed. The Five Keys is a very good summary of what I learned in business school and much, much more. The author draws heavily from his own professional experiences as a disciple of one legendary value investor and couples it with the value investment styles of other great investors like Buffett and Graham. The experience that the reader is drawn into is very worthwhile; but what makes this book very special is the framework. I have read several investment books over the years, but none like this one. Putting thousands of lessons and teachings of prominent value investors into a solid frame of mind is clearly the draw. In addition, reading along as the author analyzes and dissects companies and few special situations add gravitas to the body of work. The clarity in the concepts and the “conversation-like” tone was particularly attractive to me. In sum, this is a very coherent, practical book on the principles of value investing despite the fact that it is not too objective — considering the authors’ strong unapologetic bias towards value investing.
Wren Bradley (verified owner) –
I’m now suspicious of this book based on the duplicate entries with 5 stars obviously written by the same people who didn’t even bother to change their text in their reviews …
Ledger Bernal (verified owner) –
I like the five key points describes by the author about value investing. However, this book has a major flaw. When the author shows the numbers he use for the valuation, he didn’t describe the steps how he calculates them. So I got this weird feeling that did the author just make those numbers up ?
Flynn Salazar (verified owner) –
This book is a restatement of Buffet style investing, offering no new ideas or concepts. I should have read the Intelligent Investor for the fourth time in lieu of reading this book.
Emerald Winters (verified owner) –
No doubt this is a very good book, but honestly not for those who are just starting to invest in the stock market. This makes quite a deep dive in the technical information that can make a newbie’s head spin. However, this is a great companion to those who are willing to “invest” in themselves and learn more.
Brynlee Lyons (verified owner) –
The framework introduced in this book is excellent and the information is broad and thorough. I read a lot of Buffett and Graham; this book gives a very good description of their teachings as well of the perspectives of many other great value investors in the US. However, I thought that the author could have spent more time explaining each of the “five keys” with more examples and perhaps use a few international companies as well.
Jasiah Clayton (verified owner) –
I am trying to be an amateur investor and this book didn’t help. I was hoping for clear formulas for valuing companies, assessing risk vs. reward etc. The most valuable part of the book is when the author describes his own transaction as a manager, but he makes huge leaps over how he reaches his conclusions. I guess I needed someone to say “take this and add it to that”, etc., and this book didn’t.
Samantha McCormick (verified owner) –
Mr. Jean-Jacques bares the nitty gritty details of where and how to look for information to value the companies, determining which techniques are applicable when, and arriving at a valuation range based on triangulation from multiple relevant frameworks. IMHO, he spends a bit too much time philosophizing -perhaps, this consistent mental framework is useful to value investors starting out afresh.
Freya Young (verified owner) –
This is a wonderful book on the principles of value investing. The author does a fantastic job putting together (in a very understandable way) some of the most important tenets that every value investor should uphold. The book starts with “The Mind of the Value Investor” – which I believe to be the book’s most important chapter. Here, Mr. Jean-Jacques describes what many successful practitioners believe to be the most critical attribute to becoming a good investor… and that is emotional intelligence. After examining the book a great detail, I would consider the following sections to be most important:
— All of Chapter 1
— Business Quality Red Flags (in Chapter 2)
— Assessing Value: Tools to Consider (in Chapter 3)
— All of Chapter 4
— Identifying the Opportunity (in Chapter 6)
— Appendices A, C and E
What I did not like about the book was the length. While it what not as lengthy as some books of this type might be, “The Five Keys to Value Investing” should have been much more concise in the breadth of topics and concepts covered. Also, the examples were good but were too many in number while using analytical concepts that might be a bit too philosophical for non-professional value investors, like me. However, on a lighter point, the analogy between the game of golf and value investing in Chapter 6 was very insightful and much appreciated (it was the only light moment in the entire book!!)
Look, this book is an absolute buy. No question about that. Readers just have to be a bit skilled in order the get the most out of this very informative and thorough work.
Tony Sanford (verified owner) –
Here are the five keys:
1. Is this a good business run by smart people?(How has management performed in the past?)
2. What is this company worth? (How does the actual book value of the company comapare to the market value of the outstanding shares?)
3. How attractive is the price for this company, and what should I pay for it?(Are you getting a great price for the stock based on the value of the company,earnings per share,52 week stock price, etc.?)
4. How realistic is the most effective catalyst?(Will something happen in the next year to cause the stock price to move to real value?)
5. What is my margin of safety at my purchase price?( Are you getting a low enogh price that it can not drop much farther based on intrinsic company value?)
If you understand how to analize these keys save your money on this book, if not it can show you how.
This book also has great appendixes:
Business assesment tools
Analyzing wall street analysts recommendations
The critical failing of EBITDA
Managements plan to restructure a company
Descriptions of SEC forms.
It was a boring, clinical read, but had great keys hidden in it.
Cyrus Hughes (verified owner) –
I didn’t read the book myself, sorry, BUT my brother loves financial books and is working to start his first business. He trusts this author a lot and has read some of his work prior to this book. I think he may have actually read all or part of this book but wanted to own an ebook for himself regardless so I bought it for him for Christmas. He loves it! He reads financial books like kids eat candy and he is very particular about which finance books he reads so I seriously doubt you will be disappointed in getting this book. Perhaps I’ll borrow it from him later.