The "Little Book" series is very good, each book typically being short and to the point, and this one fits the series profile. It covers how to value a company, including intrinsic valuation techniques like discounted cash flows, and relative valuation techniques. It succeeds in what it sets out to do. The problem I have is that Joel Greenblatt in another Little Book The Big Secret for the Small Investor: A New Route to Long-Term Investment Success, totally destroys the concept of trying to value companies in this way. I'd recommend reading Greenblatt before this, and coming back if you still think it's worth it.
A reasonable introduction to valuation but the author tends to skip about between concepts without fully explaining them. The author also has a particular view on valuation techniques and doesn't fully explore alternative approaches.
In the famous sketch with Andre Previn (Mr Preview) Eric Morecambe went on to explain that the notes may not necessarily be in the right order, an apt analogy for this book. Explanations of terms may appear up to 10 pages away from where the formula was first mentioned but they are, nevertheless, there. Enough moaning, if you want to get to grips with this book, then study it. It is well worth it. I mean get a pencil and paper and take notes. Then organize the stuff to suit you. You need to work through it stage by stage, because it does build up an overall method eventually. My suggestion is to try to work out a spreadsheet for each section. As an example Glenn Martin does this beautifully in "How to Value Shares and Outperform the Market" (Harriman House).
Buy this book if you want to feel confident that you have done everything you can to check out the financials of a stock before committing to it. May your disappointments be few.
this is the third book i have read in the "little book..." range. what i like about these books are that they are concise, give very good explanations and after reading them i normally feel that i have learnt a hell of a lot of valuable investment theory/advice that can be applied at a later date. so what went wrong with this book?
first of all the style is incredibly dry and very poorly written. a couple of examples are that the author will ask the reader to refer to diagram 5.1 but the chart will be for a different company than the author is talking about. the author also refers to "beta" and lots of formulas - sadly he doesn't describe what "beta" is or breakdown the formulas or tell you where he got the ratios from - this makes it very confusing.
also i feel that this book is geared toward people who have accountancy knowledge - by this i mean that you have to have a lot of accountancy knowledge so it renders the "little book" series completely obsolete - as they are designed to be easy to read for beginners.
so why 2 stars? well it does give a small, very small amount of advice to investment - in that one should create their own indicators to test the value of an investment and not always trust the published indicators - i.e create ratios from data of an entire industry. sadly whatever else is of vale in the book is completely hidden.