Valuing Wall Street: Protecting Wall Street Profits with Nobel Laureate James Tobin's Q Ratio [Hardcover]

There's a joke going around the investment community: "You know the definition of a long-term investment? It's a short-term investment gone bad." In this absolutely delightful, easy-to-read book, authors Andrew Smithers and Stephen Wright argue downright investment heresy: maybe long-term, buy-and-hold strategy is not the most winning strategy available to investors today. And while they do not argue that in-and-out day trading is the answer, their suggestion is for investors to use "Tobin's q" to determine when to be in or out of the market. Tobin's q was devised by James Tobin in 1969, for which he won the Nobel Prize in economics. The "q" is a measure of stock market value to the actual value of the underlying assets of the firm. In times of high q, investors should sit out of the market, whereas in times of low q, investors should wade back in.

According to the authors, "the benefits of long-term equity investment have been dangerously oversold by harping on long-term returns, while failing to point out that this long-term is simply too long for most investors". Indeed, their aim is not to tell you how to make money, but instead to show you how to avoid losing it. They claim that today's market q value is so dangerously high that preserving wealth--and not trying to find the next hot shot Internet penny share--is paramount.

Valuing Wall Street is a thought-provoking work which compares the use of price/earnings ratios, dividend growth models and dividend yield models for their predictive power in valuing markets. The authors, who have one foot in the real world (Smithers run a market consultancy firm) and one in the academic camp (Wright is a lecturer at Cambridge), dismiss stockbrokers' "Stocks are wonderful" mantra in an amusing fashion. Any serious investor, and especially those nearing retirement, would do well to read this book. --Bruce McWilliams

This comprehensive guide applies James Tobin's Q ratio to today's stock market - and finds that Wall Street is dangerously overvalued! It demonstrates how to calculate Q, how to use it to decide which stocks to buy, when markets will plunge, and take protective steps before it is too late.

A reality-check on today’s stock market with insights and tools for protecting assets using Nobel Laureate James Tobin’s q ratio.
 In-depth explanation of Tobin’s q ratio and how it relates to risk
 How to assess and measure stock market value to predict bubbles
 Tips for wealth preservation, including alternatives to stocks --This text refers to an out of print or unavailable edition of this title.

A Reality Check on Today's Stock Market­­Including Easy-to-Follow Strategies for Protecting Your Assets.

"Wonderfully readable, this book's clear, direct logic borrows on Jim Tobin's concept of q to explain why the marvelous past is not only not prologue to perpetually higher and higher market valuations, but is the probable cuase of future returns being so small at best, and at worst, perhaps suddenly reversed."

­­Charles Ellis, Managing Partner, Greenwich Associates

"Andrew Smithers is one of the five best, most dispassionate, erudite analysts in the world. This is a book to read and chew on."

­­Barton Biggs, Global Investment Strategist, Morgan Stanley Dean Witter

"It takes a brave man to forecast the movement of the markets. But Andrew Smithers and Stephen Wright are the Cassandras of the New York Stock Exchange. Armed with an analysis based on q, the ratio between stock market prices and underlying capital value, they predict that the NYSE is facing a severe fall. They make their case clearly and forcefully. Investors should read and beware."

­­Professor Charles Goodhart, Monetary Policy Committee, Bank of England

"Andrew Smithers & Stephen Wright make a powerful economic argument that the New York stock market is 'wildly overpriced,' with shares 'at ridiculous levels,' calculated by them using Nobel Laureate James Tobin's q, or the ratio of share price to net worth of companies, at 1 1/2 times."

­­Professor Charles Kindleberger, Massachusetts Institute of Technology

"Smithers and Wright provide a guiding principle, based on theory, common sense and history, that should help all investors­­professional or amateur­­achieve better long run returns at much lower risk. The authors are currently serious bears; to pay attention to their case now could be the reader's most important financial decision."

­­Jeremy Grantham, Grantham, Mayo, Van Otterloo

Andrew Smithers is founder of Smithers & Co., which provides economics-based asset allocation advice to 70 of the world's largest fund management companies in London, New York, Boston, and Tokyo. He is a columnist for London's Evening Standard and the Tokyo Nikkei Kinnyu ShimbUn Market Eye, and is regularly quoted in the New York Times, Barron's, Forbes, The Economist, The Independent, and the Financial Times.

Stephen Wright Studies economics at Cambridge University, where he won the Adam Smith Prize and achieved the highest First Class degree of his year. He spent several years as Chief Economic Forecaster with the Bank of England, where he headed macroeconomic forecasting and the maintenance and development of the bank's quarterly model of the UK economy. He currently is on the Faculty of Economics and Politics at Cambridge University. His work, along with Mr. Smither's, has been cited in the New York Times, Barron's, Forbes, The Economist, and the Financial Times.