A Modern Approach to Graham and Dodd Investing

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John Wiley & Sons, Apr 26, 2004 - Business & Economics - 320 pages
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An updated approach to classic security analysis
The principles of value investing outlined by Graham and Dodd in the 1940s continues to be used today by individuals and companies who face challenging investment decisions. A Modern Approach to Graham and Dodd Investing examines the classic Graham and Dodd approach to valuation and updates it for the twenty-first century. Thomas Au, a credentialed analyst with a leading insurance company and an ex-Value Line analyst, reworks the basics of value investing from net present value, financial statement analysis, and return on capital to return and leverage, asset allocation, and diversification. Through case studies and real-time analysis, A Modern Approach to Graham and Dodd Investing presents readers with examples that will make analysis and portfolio theory more relevant and powerful.
Thomas P. Au (Hartford, CT) is a Vice President and Portfolio Manager for the investment arm of a large insurance and healthcare provider. His specialty is emerging and international markets. He received his BA, cum laude, with a double major in economics and history, from Yale University, and an MBA in finance from New York University.
 

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After reading the 1959 Benjamin Graham book THE INTELLIGENT INVESTOR, I eagerly read A MODERN APPROACH TO GRAHAM AND DODD INVESTING. End result, I came away confused by at least one of the formulas. Since the formula in question is essential to value investing according to Mr. Au's thesis, until the discrepancy is explained, the book's value is considerably diminished.
On page 105 and then again on page 123 he seems to list the same formula with two different sets of equations, one of which results in major discrepancies in investment values. Using Sherwin Williams Company as a model, using the equation on page 105 I computed a price of $44.58 per share. Using the formula on page 123, purporting to solve the same high roe generator question, I computed a price of $58.7.
I have flipped back and forth in this book dozens of time trying to resolve this and am unable to do so. It seems a fatal flaw to Mr. Au's thesis.
Teraplane5
 

Contents

PART II FixedIncome Evaluation
29
PART III Equity Evaluation
79
PART IV Special Vehicles for Investment
157
PART V Portfolio Management
203
PART VI Some Contemporary Issues
271
ENDNOTES
321
BIBLIOGRAPHY
327
INDEX
329
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About the author (2004)

THOMAS P. AU is a Vice President and Portfolio Manager for the investment arm of a large insurance and healthcare provider. His specialty is emerging and international markets. He has also worked for Unifund, an emerging markets firm in Geneva, Switzerland. Previously, he was an analyst for Value Line, an investment information company in New York City, serving in various capacities from 1983 to 1994. Mr. Au has received his BA, cum laude, with a double major in economics and history, from Yale University, and an MBA in finance from New York University.

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