A Modern Approach to Graham and Dodd Investing by Thomas P. Au

The principles of value investing outlined by Graham and Dodd in the 1940s continues to be used today by individuals and companies who face challenging investment decisions. A Modern Approach to Graham and Dodd Investing examines the classic Graham and Dodd approach to valuation and updates it for the twenty-first century.

Thomas Au, a credentialed analyst with a leading insurance company and an ex-Value Line analyst, reworks the basics of value investing from net present value, financial statement analysis, and return on capital to return and leverage, asset allocation, and diversification. Through case studies and real-time analysis, A Modern Approach to Graham and Dodd Investing presents readers with examples that will make analysis and portfolio theory more relevant and powerful.

Thomas P. Au (Hartford, CT) is a Vice President and Portfolio Manager for the investment arm of a large insurance and healthcare provider. His specialty is emerging and international markets. He received his BA, cum laude, with a double major in economics and history, from Yale University, and an MBA in finance from New York University.

Benjamin Graham and David Dodd were among the first investors to make the transition from thinking like traders to thinking like owners. In the shadow of the 1929 stock market crash, they posed a set of questions that are still applicable today: What would a reasonable businessperson, as opposed to a speculator, pay for a company and still consider that he or she was getting a bargain? What entry price would almost guarantee at least an eventual return of capital with good prospect for gains? Could a prudent investor reasonably allow for a margin of safety in his or her purchase?

Although the questions have remained the same, the ways to answer them have changed. A Modern Approach to Graham and Dodd Investing examines the classic Graham and Dodd approach to valuation and updates it for the twenty-first century. Thomas Au, a portfolio manager with a leading insurance company and ex—Value Line analyst, reworks the basics of value investing from net present value, financial statement analysis, and return on capital to return and leverage, asset allocation, and diversification.

Before learning about the modifications to Graham and Dodd’s principles of value investing, you’ll be introduced to some basic investment concepts and mathematical measures for the calculation of investment returns. From there–although the focus of the book is on stocks–you’ll first become familiar with bonds, because an understanding of the risk and return characteristics for bonds underpins an understanding of those for equities.

Recent examples, including Enron and WorldCom, are introduced throughout these pages, to illustrate exactly how you can use this updated approach to your advantage. Topics explored in this comprehensive book, include:
Part I: Basic Concepts
Part II: Fixed Income Evaluation–bills, notes, bonds
Part III: Equity Evaluation–cash flows, capital expenditures, asset value, dividends, earnings
Part IV: Special Vehicles for Investment–mutual funds, international investing, real estate
Part V: Portfolio Management–asset allocation, modern theories vs. Graham and Dodd
Part VI: Some Contemporary Issues–the Dow, excessive credit creation, generational cycles in the American stock market

A Modern Approach to Graham and Dodd Investing examines the changes that have taken place in the financial world since the days of Graham and Dodd, and reveals the necessary modifications you must make in order to apply these value investing principles in today’s markets. Filled with in-depth insight and practical advice, this valuable resource offers an updated form of Graham and Dodd that will help you face today’s market realities.

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