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Money Machine: The Surprisingly Simple Power of Value Investing
It’s time to put your money to work the smart way and stop chasing quick payoffs that never turn out. That seductive stock tip you just overheard? That’s your ticket to flushing your savings down the toilet. The story you saw on a promising new product? Only those who invested before the story came out have any chance of a solid payout. If you want to succeed in the market, you need to learn how to invest based on value, selecting stocks that will continue to enrich you for years to come.Money Machine looks at Wall Street wonders Warren Buffet, Benjamin Graham, and other legends and shares how you, too, can utilize their secrets to unimaginable success! By learning the keys to value investing, you will discover how to:• Judge a stock by the cash it generates• Determine the stock’s intrinsic value• Use key investment benchmarks such as price-earnings ratio and dividend-price ratio• Recognize stock market bubbles and profit from panics• Avoid psychological traps that can trip you up• And more!Investing in the market doesn’t have to be reckless speculation. Invest in value, not ventures, and find the financial success all those gamblers are still looking for!
320 pages, Hardcover
Published June 8, 2017
28 people are currently reading
77 people want to read
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Displaying 1 - 7 of 7 reviews
November 26, 2022
A practical explanation of value investing with its canonical formulas (i.e. JBW, Shiller, Bogle models) in examples of Apple, Google and Amazon. Useful tips to collect $100 bills on the side such as Royal Dutch/Shell (not anymore) and Unilever (still - I would add ASML as current), ticker familiarity (anchoring), harvesting lost (sunk cost fallacy), owning a house and living in it (i.e. home dividend). It's a good read overall to establish long-term milking mindset.
June 22, 2017
I’m grateful for the opportunity to be the first one to review this very informative book on investment strategies, specifically, incisive yet easy-to-understand investment strategies that will guide readers to make levelheaded decisions in an ever unpredictable market.
Stock prices are not always rational, efficient, or predictable. The key is to think of stocks as money-machines and not get-rich-quick schemes. Consider the price relative to its returns. Focus on income generation, and don’t waste your time trying to figure out if the market is high or low at any given time. This is what the author calls a value investor. Don’t buy stocks at inflating prices and hope to sell at still higher prices. Value investors judge the value of a stock by its intrinsic value, not what others are willing to pay at the moment.
The author also touches on some interesting investment theories. One such example is the efficient market hypothesis, which posits that market price already takes into account all relevant information so no investor can take advantage of other’s ignorance. If something can be predicted, there’s already a new balance of buyers and sellers that reflect that change. Stock prices will change when the unexpected happens, and it’s impossible to predict the unexpected (by definition), therefore it’s impossible to predict the change in stock prices.
This book is perfect for those who want practical strategies to try the stock market. Too often an investment book is too heavy on theory, but this piece achieves a good balance between the author’s own experiences, insightful theories in the field of investment, and memorable historical anecdotes.
While most the book talks about investment, the last chapter grazes on real estate investment, a topic that is of particular interest to me. Many of the strategies are comparable to investment in stocks, and thus provide a good overview of the key points of the whole book. To give you a taste of the amount of information in a chapter, here are my own notes for the real estate section at the end of the book:
CHAPTER 16: INVESTING IN YOUR HOME
“buy land, they’re not making it anymore” - mark twain
- a home is just an investment, just like a stocks. Stocks have dividends; homes have rent - rent you collect as a landlord or rent you don’t have to pay owning a home.-
- some people think homes are
1) an expense for a need - it’s worth what others sell for
2) a way to riches - they flip for profit and think real estate will continue to grow no matter what
- appraisal value is not the same as intrinsic value, because homes do not necessarily worth what others are willing to pay for it at the time of appraisal, unless it generates enough income for the price
- real estate speculators tend to have a horrible focus on appreciation, they need home prices to go up year after year
- value investors think about the income from real estate - the home dividend
- some think we should compare monthly rent with monthly mortgage payments, problems:
1) average rental maybe smaller than average home & location matters: need to compare the rent with mortgage for the same property
2) mortgage payment is dependant on down payment, so is it always worth to buy if you pay everything up front and have no mortgage payments? No.
i) interest part of the mortgage is tax deductible. There is also property tax, insurance, and maintenance expenses.
ii) Rent will also increase over time while mortgage is finite
- a home’s net income (the author calls the home dividend) is income minus expenses.
- there are non-financial considerations why home dividend calculation underestimate the value of home ownership: Renter may not like the landlord’s tastes in decorations, no financial benefit for the rent to upgrade the home, renter may have less privacy than home owners
- value investors compare home dividend to house price, is it a good return on investment?
- home dividend will increase each year because rent will increase and mortgage will decrease
- it’s a great investment if it’s still a good deal if you assume the homebuyer never sells, and only consider the income generation, just like stocks
- most of the increase in your wealth will come from the dividend, price appreciation is only an added bonus, but not the most persuasive reason
- annual ups and downs in prices aren’t that important. If you sell your home for a high price, you will also pay for a high price when you buy your next home. If you sell your home low, you will buy the next home low too. Dividends in the long run is more important than zigzags in market prices.
-considerations for renting out (vs living in)
a) there’s only a return on investment if there are tenants.
b) difficult tenants who refuse to pay
c) maintenance expenses increased because tenants don’t take care of the home as well as homeowners
d) difference tax rules: rent as taxable income, expenses are different, higher property taxes, no savings for interests on property taxes and maintenance because they must be used against taxable income.
- adverse selection - high risk people take advantage of deals intended for low risk people. e.g. people who choose to rent because they are more likely to believe they will lose their job, not handy around the home, accidents-prone, or have unruly children/pets. These characteristics are more prevalent among renters
- moral hazard - people behave differently when others are paying the bills. most people will take better care of a home if they own it, than rent it.
- considerations for long distance landlords: flying out to buy, pay someone to screen tenants and do repairs. Property management usually take 5-10% of the rent.
- buying a home to live in it pays better dividends than renting it out
Stock prices are not always rational, efficient, or predictable. The key is to think of stocks as money-machines and not get-rich-quick schemes. Consider the price relative to its returns. Focus on income generation, and don’t waste your time trying to figure out if the market is high or low at any given time. This is what the author calls a value investor. Don’t buy stocks at inflating prices and hope to sell at still higher prices. Value investors judge the value of a stock by its intrinsic value, not what others are willing to pay at the moment.
The author also touches on some interesting investment theories. One such example is the efficient market hypothesis, which posits that market price already takes into account all relevant information so no investor can take advantage of other’s ignorance. If something can be predicted, there’s already a new balance of buyers and sellers that reflect that change. Stock prices will change when the unexpected happens, and it’s impossible to predict the unexpected (by definition), therefore it’s impossible to predict the change in stock prices.
This book is perfect for those who want practical strategies to try the stock market. Too often an investment book is too heavy on theory, but this piece achieves a good balance between the author’s own experiences, insightful theories in the field of investment, and memorable historical anecdotes.
While most the book talks about investment, the last chapter grazes on real estate investment, a topic that is of particular interest to me. Many of the strategies are comparable to investment in stocks, and thus provide a good overview of the key points of the whole book. To give you a taste of the amount of information in a chapter, here are my own notes for the real estate section at the end of the book:
CHAPTER 16: INVESTING IN YOUR HOME
“buy land, they’re not making it anymore” - mark twain
- a home is just an investment, just like a stocks. Stocks have dividends; homes have rent - rent you collect as a landlord or rent you don’t have to pay owning a home.-
- some people think homes are
1) an expense for a need - it’s worth what others sell for
2) a way to riches - they flip for profit and think real estate will continue to grow no matter what
- appraisal value is not the same as intrinsic value, because homes do not necessarily worth what others are willing to pay for it at the time of appraisal, unless it generates enough income for the price
- real estate speculators tend to have a horrible focus on appreciation, they need home prices to go up year after year
- value investors think about the income from real estate - the home dividend
- some think we should compare monthly rent with monthly mortgage payments, problems:
1) average rental maybe smaller than average home & location matters: need to compare the rent with mortgage for the same property
2) mortgage payment is dependant on down payment, so is it always worth to buy if you pay everything up front and have no mortgage payments? No.
i) interest part of the mortgage is tax deductible. There is also property tax, insurance, and maintenance expenses.
ii) Rent will also increase over time while mortgage is finite
- a home’s net income (the author calls the home dividend) is income minus expenses.
- there are non-financial considerations why home dividend calculation underestimate the value of home ownership: Renter may not like the landlord’s tastes in decorations, no financial benefit for the rent to upgrade the home, renter may have less privacy than home owners
- value investors compare home dividend to house price, is it a good return on investment?
- home dividend will increase each year because rent will increase and mortgage will decrease
- it’s a great investment if it’s still a good deal if you assume the homebuyer never sells, and only consider the income generation, just like stocks
- most of the increase in your wealth will come from the dividend, price appreciation is only an added bonus, but not the most persuasive reason
- annual ups and downs in prices aren’t that important. If you sell your home for a high price, you will also pay for a high price when you buy your next home. If you sell your home low, you will buy the next home low too. Dividends in the long run is more important than zigzags in market prices.
-considerations for renting out (vs living in)
a) there’s only a return on investment if there are tenants.
b) difficult tenants who refuse to pay
c) maintenance expenses increased because tenants don’t take care of the home as well as homeowners
d) difference tax rules: rent as taxable income, expenses are different, higher property taxes, no savings for interests on property taxes and maintenance because they must be used against taxable income.
- adverse selection - high risk people take advantage of deals intended for low risk people. e.g. people who choose to rent because they are more likely to believe they will lose their job, not handy around the home, accidents-prone, or have unruly children/pets. These characteristics are more prevalent among renters
- moral hazard - people behave differently when others are paying the bills. most people will take better care of a home if they own it, than rent it.
- considerations for long distance landlords: flying out to buy, pay someone to screen tenants and do repairs. Property management usually take 5-10% of the rent.
- buying a home to live in it pays better dividends than renting it out
February 23, 2018
Would disagree with author approach: "My way is only right way"
Read
October 25, 2024I had to read this for a personal finance class (college sophomore). I was really scared it would be boring and would take me forever to get through because of terminology i was unfamiliar with, but it was an amazing read and it only took me a couple hours to get through. It was really insightful and I feel like I learned more in the hours I spent reading this book than I did this entire semester.
November 1, 2017
mm..Interesting perspective..
1. What is Looooong term
2. Real estate investing
1. What is Looooong term
2. Real estate investing
July 7, 2021
It was a nice, gentle introduction to value investing for a novice like me. The author was my professor, and he has a lot of interesting stories to tell (just like in person). He advocates the strategy of paying attention comparing a stock's intrinsic value (related to things like dividends, earnings, and assets) to its price, rather than trying to predict the movements of its price, and offers some really simple mathematical (but apparently very useful) formulas for assessing potential stocks. Because markets are only semi-efficient due to investor greed, speculation, overreaction, etc., stock prices won't always reflect intrinsic values, leaving opportunities for value investors to snatch up bargains. The appealing aspect of this strategy is that it doesn't require a lot of time or advanced mathematical/financial knowledge; what it does require is a great deal of discipline and restraint. I like how despite the fact that he's a successful investor on the whole, he was also willing to be open about his failures and the limitations to his knowledge. He also has some intriguing thoughts towards the end on the home being an investment that pays a dividend, not unlike a stock.
May 31, 2018
Interesting.
Displaying 1 - 7 of 7 reviews