Uncommon Sense Investment Wisdom Since the Stock Market's Dawn

Uncommon Sense takes readers on a four-century journey; from the dawn of public share ownership (in 1602) right up to today. But this is not simply a history book. It's a book for serious investors. Along the way it reveals the fascinating stories, the market characters and the important financial developments that have sculpted the thinking behind the value investor's craft. Blended throughout the narrative Kemp delivers an array of interesting anecdotes and rock solid logic regarding what works when investing in the stock market, what doesn't, and why.

Early in the 20^th Century, Charles Dow remarked of Wall Street Operators that 'the more they actually know, the less confident they become.' Continuing in the tradition of that simple, elegant statement, this enlightening and entertaining book will have you thinking, acting and succeeding on your own in your investment endeavours.

• Learn to question conventional wisdom at every turn and develop a healthy skepticism as you plan your own investment strategies
• Develop a rich understanding of the stock valuation process
• Discover the methods that have been used by successful investors from the dawn of the modern stock market (in 1602) right up to today
• Learn how to interact simply and successfully with markets that are vastly complex and largely inexplicable

Uncommon Sense will have you questioning and doubting much that's stated about stock market investing, then developing your own winning strategy based on reason and understanding.

MICHAEL KEMP has worked as a corporate financier in Australia and overseas. He is the author of Creating Real Wealth.

About the author xi

Acknowledgements xiii

Part I: The limits of reason 1

0.9 Start thinking for yourself 3

1. The Pied Piper 9

2. The art of prediction 21

3. Why economics will never be a science 29

4. Forecasting the stock market 35

5. Does the stock market forecast the economy? 49

6. Can charts predict? 55

7. Market timing 65

8. Are computers the answer? 85

9. The efficient market hypothesis 97

10. Trader or investor? 107

11. Realistic expectations of returns 119

Part II: Stock screens and value metrics 125

12. Where to start: stock screen or triad of analysis? 127

13. Don’t accept the PE ratio at face value 135

14. Earnings growth isn’t always a good thing 145

15. Why do price to book ratios vary? 153

16. Selecting stocks by dividend yield 159

Part III: The genesis of stock valuation 167

17. It all started in Europe 169

18. Time to cross the Atlantic 185

19. The adoption of financial reporting 199

20. The modern era 209

Part IV: ‘Calculating’ value 215

21. Intrinsic value and market price 217

22. Earnings and earnings growth 231

23. The discount rate 245

24. The formulae 265

Part V: Beating the stock market 277

25. The Durant-Dort Carriage Company 279

26. Searching for numeric constants 283

27. The human constant 291

28. Coin-flipping orang-utans (my first trips to Omaha) 297

Appendix A: Why book value differs from economic value 309

Appendix B: Debt analysis 311

Glossary 317

References 321

Bibliography 331

Index 337

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