Klein Peter J., Iammartino Brian R. Getting started in security analysis

2nd ed. — 2009. — 339 p.
Printed in the United States of AmericaAcknowledgments viiTools of the Trade
Accounting
Economics
Investment Mathematics
Quantitative Analysis
Fundamental Financial Security Analysis
Equity Analysis and Valuation
Credit Analysis
Real Estate
Portfolio Management
The Investment Management Process
Epilogue
Appendix: Selected TablesAs you will read this book, it should become obvious that investment analysis and its related extensions are rigorous enough to be taken as an actual science.
Like other scientific disciplines, investment analysis requires a working knowledge of its basic concepts. Part 1, Tools of the Trade, explores these concepts, with considerable emphasis on exercises that hone awareness, expertise, and understanding of this once arcane subject. A century ago, the task of investment counseling belonged to men of prudence who, for fear of being wrong, usually invested funds with guaranteed returns and did not rely on scientific discipline. The fear of not being beyond reproach — otherwise known as reputation fear — provided enough guidance for these men. Typically the wealthy and elite, they did not see the utility of investment analysis for the simple reason that they did not have to — they were already rich.
Today, investment analysis plays a meaningful role in planning for a comfortable financial future. This book provides the reader with a firm foothold on this important subject (although the basic concepts may prove helpful in many of life’s other exercises). Mastery of investment analysis takes much more than a cursory read through this text; it requires years of study and perhaps decades of practical experience. Our hope is to provide today’s investor — novice or seasoned — with enough understanding tosimulate the workings of Wall Street analysts. An investor, after reading this manual, will have a fundamental store of financial information; will
understand the terms, pricing, and research of a financial services provider; and will find the daily financial papers more interesting.
Many investors are well aware of the basics of financial planning through exposure to myriad seminars, books, magazines, and web sites.
They need the next level of information. Just think about how many of your friends understand the risk-return trade-off (more risk, more return), asset allocation (spreading assets around into many classes), andthe need for long-term investing habits. But how many wish they understood how a company’s shares are valued, or how the workings of regression analysis and the typical economic releases in a given month directly affect the value of their investments? Part 1 is designed to provide this essential background.
Part 2, Fundamental Financial Security Analysis, sets forth the notion that the tools described in Part 1 can be of practical use only if the investor understands how a given company is valued. Thus in this part, we explain the methodology behind the valuation techniques of a company’s equity and debt securities:
With tomes of data available, how should we quantify the value of this company? Which calculations must be executed to ascertain the true value of this company?
Consequently, these valuation techniques build on the lessons of Part 1.
Without a firm understanding of the tools analysts use, it is impossible to firmly grasp the true valuation process.
Part 3, Portfolio Management, is a discussion of the investment management process — the symbiosis of the tools and valuation techniques with the financial planning process. It includes an examination of the laws and regulations that govern this highly regulated industry. To fully grasp these legal constraints, today’s serious investor must understand and be able to use the investment management process.