Fundamental Analysis Book Summaries

Investor Al Frank's newsletter,  The Prudent Speculator, had one of the better stock picking track records according to The Hubert Financial Digest. Eventually, a mutual fund was started using the strategies outlined in the book. Al Frank, who was primarily a value investor, discusses his philosophies and trading ideas in his book New Prudent Speculator.

While his plan is simple: buy undervalued stocks and hold them until they are fully valued the implementation part is not as easy, especially being patient both on the buy and sell side. For him, the big three fundamental criteria are the price to earnings ratio, the price to revenue ratio and price to book value. His experience dictates that time is more important than diversification. He spends some time on the randomness of the markets and provides some guidance on how to deal with it.

In Beating the Street, a national bestseller, Peter Lynch talks about how he managed and bought stocks for one of the largest mutual funds in the United States. Lynch was on the lookout for stocks with great ideas and franchise potential. He was looking for the "10 bagger" and was a value investor.

From this book, I received information which has steered me away from purchasing bonds in favour of dividend paying stocks. Peter has made a great argument for never buying bonds because they generally do not increase the rate at which they pay out.

Getting my dad back in 1973 to by 100 shares of McDonald's when I started going there weekly would have aligned to the type of stock Peter is looking for. That one trade, provided the stock was still owned,  would be worth over $1,000,000 and producing over $27,000 a year in dividends.

This classic value investing book, originally published in 1949, is still recommended today. Benjamin Grahma's The Intelligent Investor (2006) is for investors and traders looking to slowly build a portfolio of quality stocks. Ben was one of Warren Buffet's teacher and he has gone on to become one of the wealthiest investors on the planet.

The philosophy is built around the idea that you are buying a part of a company not a stock. Benjamin is searching to identify businesses where the value of the business, is undervalued based on the current price, as determined by the stock market.

Within the book are given seven fundamental criteria that define what type of company is being sought. Two of which are: a sufficiently strong financial position and earnings stability. Also provided are the ranges one should be looking at prior to purchase. As an example, the current assets should be at least twice current liabilities. 

This New York Times bestseller, with a foreword by Peter Lynch, discusses the strategies Warren Buffett uses in identifying and purchasing stocks to hold for the long term.

Hagstrom in his book The Warren Buffett Way offers some good insights into the differences between a trader and an investor. Some of the ideas presented when looking for a good company to purchase are: Simple and understandable businesses, consistent operating history, return on equity and profit margins. Companies having competitive barriers, with the ability to raise prices are considered good qualities. Other examples of what to look for in a company was to buy a company for two thirds of its net asset value or focus on stocks with a low price to earnings ratio.

When you are interested in gaining more insight into how Warren Buffett thinks, this might be the book for you.