"I have worked with Gabriel Wisdom for many years, and he is well positioned to be one of the new Graham and Dodds of this era. This book has much wisdom for investing in the long bear market ahead. I strongly suggest that you study his techniques thoroughly."—Harry S. Dent Jr., Economist and New York Times bestselling author
"Wisdom on Value Investing has found a permanent place on my bookshelf next to my four editions of Graham′s Security Analysis and the last thirty years of Berkshire Hathaway annual reports. I can′t think of a better book to have at¿your side for making money in these turbulent times."—Mary Buffett and David Clark, internationally acclaimed authors of six books on Warren Buffett′s methods
When it comes to buying and selling stocks, why do some people have a magic touch, while others have the kiss of death?
Based on Gabriel Wisdom′s popular Fallen Angels strategy, Wisdom on Value Investing offers you the tools to invest successfully in both bull and bear markets—sharing the top ten traits of the greatest investors in history.
This savvy guide recognizes that markets rise and fall based on emotion, moods, and circumstances, and that people who are aware of this phenomenon—and use it to their advantage—are in a position to make a lot of money.
Laying out his methodology for determining when it is worth investing in a "Fallen Angel" whose stock price has plunged, the tips and strategies found in Wisdom on Value Investing will help you enter today′s market with confidence and exit with profits.
Chapter 1 Ten Traits of The World’s Greatest Bargain Hunters 1
Chapter 2 Fallen, Not Falling (An Important Distinction) 15
Chapter 3 Great Moments in Bottom Fishing: The Fallen Angels Hall of Fame 29
Chapter 4 Buy CATS (Cheap and Timely Securities), Avoid Dogs 35
Chapter 5 Cycles and Wall Street’s Wheel of Fortune 45
Chapter 6 Who Wants to Be a Billionaire? 57
Chapter 7 Time Arbitrage, The Rational Investor’s Ally 69
Chapter 8 The Pilot’s Checklist For Safe and Effective Investing 77
Chapter 9 The Science of Demographics: A Glimpse into the Future 87
Chapter 10 How to Pick Stocks: The Fallen Angels Formula 95
Chapter 11 Profit from Panic, Corrections, and Volatility 107
Chapter 12 The Little Chapter that Makes You a Better Investor 119
Chapter 13 Will You Know When to Sell? 131
Chapter 14 Real Estate: The Other Fallen Angel Opportunity 145
Chapter 15 Ten Fallen Angels for the Next Five Years 155
Chapter 16 Stocks and Bonds and Rock and Roll: My Story 163
Appendix: Recommended Books, Web Sites, and
Helpful Sources 169
About the Authors 173
In WISDOM ON VALUE INVESTING: How to Profit on Fallen Angels, seasoned investment adviser and popular radio host Gabriel Wisdom offers his own insights and guidelines for investors at any level, from beginners and novices to the experienced. Wisdom’s winning strategies stem from his golden rule and the number one trait of all successful investors: “Buy stocks (or whatever) when everyone else is panicking, and to sell when others are overly optimistic.” Wisdom states, “Panic is the overriding instinct that causes otherwise solid stocks and bonds to suddenly go on sale. You see it all the time. People want out after a meltdown. They can’t take the pain and uncertainty, so instead of looking beyond the calamity, they bolt after the annihilation, not before it. This attitude can provide one of the greatest opportunities you may ever have for increasing your wealth.” While this strategy can seem “deceptively simple,” Wisdom’s counterintuitive strategies are harder to adopt than they appear. To resist the urge to follow the herd, Wisdom introduces his successful investing game plan for a high potential return on investment—the Fallen Angels approach.
Part classic value investing and part behavioral finance, this approach involves identifying a stock or commodity whose price has declined to a level below the securities’ underlying, intrinsic value and then closely scrutinizing whether the entity’s fundamentals are likely to propel it to future revenue and earnings growth. Stock prices for financially viable companies can be devastated by the effects of the business cycle, one-time calamities, or widespread panic. There is always a sale or a bargain; still, investors need to know what they are looking for in order to differentiate between fallen angels, fall-ing angels, and the rightfully and unlikely to rise fallen stocks. As Wisdom attests, “If you have a system for determining what to buy, when to buy it, and when to sell it, you’re already ahead of most investors.”
After providing investor traits, tips, tricks, checklists, terms and formulas, Wisdom presents his three-step approach to investing in Fallen Angels.
Search for undervalued, excellent companies: Wisdom outlines the questions every investor should ask themselves about the company before investing—covering history, revenues, earnings, PEG ratio, ROE, cash flows, liquidity, ratios, intrinsic value, net profit margin comparison, and the company’s management. Discussing the significance of the statistics and numbers, he demonstrates how to navigate Yahoo!Finance to discover the data needed to assess the expected rate of return.
Buy stock in excellent companies at reasonable and below-market prices: Once the numbers are analyzed, readers are able to see the truth worth of a company. Wisdom’s Rule of 72 and intrinsic value formula aid in determining if the stock is a bargain. To determine how long it would take to double any initial investment, divide 72 by the expected rate of return for a given company. For example, an investment in a company with a 10 percent return will allow us to double our money in 7.2 years. Better yet, estimate the company’s intrinsic worth by dividing the earnings per share by the anticipated rate of return on a CD for instance, possibly 5%. The answer is the intrinsic worth. If this is higher than what the stock is selling for, then that is what investors may suspect is a bargain.
Sell the stock when the stock or the company no longer meets our criteria: Timing is everything when it comes to selling. Wisdom urges investors to “keep a cool head while others are losing theirs, and over the long run, you should increase your wealth…look at the market and the world with a sense of detachment and, most importantly, stick with proven investment principles when times are tough.” That is why he presents professional timing techniques and technical indicators that professional investors use in their daily management of portfolios.
By following this approach, investors will know how to capitalize on value plays where the fundamentals are actually strong, but the "general wisdom" surrounding the security has turned negative. Stocks with the most promise are ones that Wall Street has marked down, without regard to their underlying value. The best opportunities will sell at roughly half off. These kinds of intrinsic value discounts can provide a margin of safety during difficult times, and substantial upside rewards for those investors who find them early enough.
—Thomas Bulkowski, thepatternsite.com, October 2009
“ … I liked this book because it presented value investing in a way that wasn’t intimidating. It touched on a lot of investing topics, such as portfolio management and categorizing Fallen Angels, and subjects I haven’t even mentioned and does so in a very casual and conversational way.”
— Jim Wang, bargaineering.com, January 2010
"You really can become a better investor if you pay attention to fundamentals, and look for investments that are underpriced but have good upside potential. You may not score big in a year or two, but you are more likely to see steady gains over the years if you employ some of the techniques in Wisdom′s book." ”
— Miranda Marquit, AllBusiness.com, February 2010