Investment Philosophies

CHAPTER 1 Introduction 1
 
What Is an Investment Philosophy? 2
 
Why Do You Need an Investment Philosophy? 3
 
The Big Picture of Investing 4
 
Categorizing Investment Philosophies 7
 
Developing an Investment Philosophy 10
 
Conclusion 12
 
Exercises 13
 
CHAPTER 2 Upside, Downside: Understanding Risk 15
 
What Is Risk? 16
 
Equity Risk: Theory-Based Models 16
 
Assessing Conventional Risk and Return Models 32
 
Equity Risk: Alternative Measures 34
 
Equity Risk: Assessing the Field 45
 
Default Risk 46
 
Conclusion 50
 
Exercises 51
 
CHAPTER 3 Numbers Don't Lie--Or Do They? 53
 
The Basic Accounting Statements 53
 
Asset Measurement and Valuation 55
 
Measuring Financing Mix 62
 
Measuring Earnings and Profitability 69
 
Measuring Risk 75
 
Differences in Accounting Standards and Practices 82
 
Conclusion 82
 
Exercises 85
 
CHAPTER 4 Show Me the Money: The Basics of Valuation 87
 
Intrinsic Value 87
 
Relative Valuation 110
 
Valuing an Asset with Contingent Cash Flows (Options) 119
 
Conclusion 121
 
Exercises 122
 
CHAPTER 5 Many a Slip: Trading, Execution, and Taxes 125
 
The Trading Cost Drag 125
 
The Components of Trading Costs: Traded Financial Assets 127
 
Trading Costs with Nontraded Assets 146
 
Management of Trading Costs 148
 
Taxes 150
 
Conclusion 159
 
Exercises 160
 
CHAPTER 6 Too Good to Be True? Testing Investment Strategies 163
 
Why Does Market Efficiency Matter? 163
 
Efficient Markets: Definition and Implications 164
 
Behavioral Finance: The Challenge to Efficient Markets 170
 
A Skeptic's Guide to Investment Strategies 204
 
Conclusion 206
 
Exercises 207
 
CHAPTER 7 Smoke and Mirrors? Price Patterns, Volume Charts,

ASWATH DAMODARAN is Professor of Finance at New York University's Leonard N. Stern School of Business. He has been the recipient of numerous awards for outstanding teaching, including the NYU university-wide Distinguished Teaching Award, and was named one of the nation's top business school teachers by BusinessWeek in 1994. In addition, Damodaran teaches training courses in corporate finance and valuation at many leading investment banks. His publications include Investment Valuation (now in its third edition), Damodaran on Valuation: Security Analysis for Investment and Corporate Finance; Corporate Finance; Investment Management; and Applied Corporate Finance, all published by Wiley, and The Dark Side of Valuation.