• Develop a spreadsheet to value a stock;
• Combine stocks in an efficiently structured investment portfolio;
• Manage your risk; and
• Use the 10 principles of finance to your advantage.
This book is a complete revision of Streetsmart Guide to Valuing a
Stock (1999). In the four years since the publication of Streetsmart, the
stock market has crashed, managers of many corporations such as En-
ron, WorldCom, and Adelphia have been indicted for fraud, and cer-
tain Wall Street stock analysts have been discredited and have attained
a business stature below that of used car salesmen. We feel that it is
time to place stock valuation within the context of some general rules
and concepts that are at the core of finance theory. This book explains
in simple terms the 10 principles of finance and describes how you can
use them to make better investment decisions and to estimate a stock’s
value.
This book is for all of you who mistakenly think you have to be a
stock market guru to value stocks like a pro. All the tools you need to
value stocks are outlined in the chapters that follow. All that is required
is a bit of patience, practice, and persistence.
You don’t need an MBA to understand the book’s concepts or the
10 principles. The goal of the book is to give all stock market partici-
pants—individual investors, investment club members, stockbrokers,
SEC staffers, corporate managers, directors of corporate boards, and or-
dinary people who want to learn about stock valuation—a simple quan-
titative approach for estimating stock values. Our model is a recipe for
correctly and conservatively valuing common stock and increasing in-
vestment profits.
In this book we describe how you can use Excel to write a spread-
sheet to value stocks with a minimum number of inputs. If you don’t
want to write a spreadsheet program, we show you how and where you
can purchase the computer software, which we have developed and
use in the book. Finally, we provide a free online stock valuation ser-
vice on our Web site, www.valuepro.net/.
If you’re technologically challenged, not to worry. You don’t need
a computer or an Internet connection to use the discounted free cash
flow method to value a stock.
