Valuing Wall Street: Protecting Wealth in Turbulent Markets
Item Number: 1565
Date Published: 1999
Publisher: McGraw Hill Publishing Co.
Number of Pages / Length: 352 Pages
Format: Hardcover
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Price: 29.95
Author(s):
 Andrew Smithers
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Synopsis:
"Most books about the stock market tell you how to make money. This one
... will show you how to avoid losing it," begins this smart, blunt, cautionary
tale based on Nobel laureate James Tobin's 1969 "q ratio," which posits,
among other things, that no matter how bullish a market gets, it's bound to
snap back into place at some point--and those who don't brace for the reversal
will feel its sting. Description:
The authors, one a prominent asset-allocation adviser and
the other a former head of macroeconomic forecasting for the Bank of England,
warn that it's only a matter of time before the overexuberant market of
the early 21st-century topples like its counterparts in 1929 and 1968.
Here they set out to show why and how this will happen--as well as to tell
stockholders what they should and should not do if they want to emerge
intact.
After making a cogent new argument in defense of the still-controversial
q ratio, the authors show how it plays into principles of stock-market
risk and return, how it has determined the value of Wall Street in the
past and will continue to do so, and how to apply it as a practical investing
tool. They do a neat job of parsing the good and bad news about stocks
as a sound investment for the future, and of what to do and not do with
one's money come the inevitable bear market. From there, they get down
to the nitty-gritty of valuing the stock market, providing four key tests
for any indicator of value and explaining how to fold in such factors as
the dividend yield, the price-earnings ratio, the adjusted price-earnings
multiple, yield ratios, and yield differences. They wrap up with a look
at what they call "the q debate" among both economists
and stockbrokers, and finally, they apply the q ratio specifically to the U.S.
economy, rebuking Alan Greenspan's Federal Reserve for its role in what they
see as the coming U.S. bubble burst.
With its plain English, helpful illustrated charts, vivid examples from history,
and even the occasional employment of the likes of Alice in Wonderland to prove
its points, Valuing Wall Street should be accessible to those with a working
understanding of the market and economic principles. All told, this book is
not so much a how-to as it is a theoretical forecast whose tidings investors
might want heed as we near what Smithers and Wright warn are rough years ahead.
--Timothy Murphy
The U.S. stock market is massively overvalued. As a result, the Dow could easily
plummet to 4,000 - or lower - losing more than 50% of its value wiping out nest
eggs for millions of investors. So argue Andrew Smithers and Stephen Wright
in Valuing Wall Street: How to Predict and Plan for Market Bubbles. Using the
q ratio developed by Nobel Laureate James Tobin of Yale University, Smithers
& Wright present a convincing argument that shows the Dow plummeting from
its peak of 9600 to lows not seen in a decade. Tobin's q, the controversial
method for valuing stock markets which has successfully called every major market
top this century, is the ratio of market value to replacement cost of assets
and liabilities. Using q, Smithers & Wright show the risks associated with
Wall Street, how to predict a burst in the bubble before it's too late, and
what to do when the market plunges. Table of Contents:
- Part One: The Case for q.
- Chapter 1: The Good News and the Bad News About q.
- Chapter 2: On q.
- Chapter 3: q and the Long-Term Investor.
- Chapter 4: q Versus the Competition.
- Part Two: Stock Market Risk and Return.
- Chapter 5: The Power of Compound Interest (or How to Oversell Stocks).
- Chapter 6: The True Impact of Stock Returns.
- Chapter 7: Stock Market Risks: Some History.
- Chapter 8: Stock Market Risks: The Impact on Investors.
- Part Three: q And The Value of Wall Street.
- Chapter 9: The Meaning of Stock Market Value.
- Chapter 10: Stock Picking or Aggregate Value?
- Chapter 11: What Hindsight Tells Us About Stock Market Value.
- Chapter 12: A Closer Look at q.
- Chapter 13: What q Could Have Told Investors About Value in the Past.
- Chapter 14: q as an Investor Tool.
- Part Four: q And The Future of Wall Street.
- Chapter 15: The Bad News About Stocks as Investments for the Long Run.
- Chapter 16: Why q Has Risen, and Why q Will Fall.
- Chapter 17: The Good News About Stocks As Investments for the Long Run.
- Part Five: Surviving the Bear Market.
- Chapter 18: What to Do with Your Money.
- Chapter 19: What Not to Do with Your Money.
- Part Six: How to value the Stock Market.
- Chapter 20: How to Value the Stock Market: Four Key Tests for Any Indicator
of
Value.
- Chapter 21: The Dividend Yield.
- Chapter 22: The Price-Earnings Multiple.
- Chapter 23: The Adjusted Price-Earnings Multiple.
- Chapter 24: Yield Ratios and Yield Differences.
- Chapter 25: Corporate Net Worth and q.
- Chapter 26: q-Equivalence.
- Chapter 27: q and the Dividend Discount Model.
- Part Seven: q And the ANTI-qs.
- Chapter 28: The q Debate Among Economists.
- Chapter 29: The Equity Risk Premium and Stock Market Valuations.
- Chapter 30: The q Debate Among Stockbrokers.
- Part Eight: q And The U.S. Economy.
- Chapter 31: Past Falls in q and Their Economic Impact.
- Chapter 32: The Economic Consequences of Alan Greenspan
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