The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit (Little Books. Big Profits)

This is not a romance novel. You read The Little Book of Valuation in order to gain valuable skill sets and methodologies for making money in the stock market. Professor Damodaran is a full professor at the New York University Stern School of Business. He is deemed to be the expert on valuation in this country, certainly on an academic level. There are real world experts in Wall Street and in corporate consulting firms like McKinsey & Company, but none have had the academic impact that this man has. What Damodaran brings to the table is unique. He is the first person that I have encountered who has been able to distill what many people consider to be a very difficult topic down to a simplistic discussion. After you read this book, you will understand valuation, which seems to be difficult even for those with decades of experience on Wall Street. There are 11 chapters spread out over 225 pages, every one of which proved to be interesting, and highly readable. I found three chapters to be particularly worthwhile. They were Chapter 2 Power Tools of the Trade Chapter 4 It's All Relative Chapter 11 Invisible Value The professor uses a series of companies to explore different valuation techniques. They include Under Armor, Hormel Foods, Exxon Mobil, Wells Fargo, and Amgen. He explores intrinsic value and relative value techniques and tells the reader when to use which, and more importantly how to uniquely blend the techniques to obtain an even more meaningful valuation. It is obvious that aside from being a master of valuation Damodaran has intellectually thought about his topic for many years. These are just some of the concepts that are uniquely explained in this book: * The bias starts with the company you choose to value * Be honest about your biases * Most valuations are WRONG * Avoiding uncertainty doesn't make it go away In the last chapter, entitled 10 Rules for the Road, the author lays out for you the most important conclusions he has formulated in his long academic career. There were three that I personally found highly significant. 1) Risk affects Value 2) Growth is not FREE 3) All good things including growth come to an end. Nothing is forever. CONCLUSION: You have a choice if you want to learn about how to value a company. You can read a 1000 page textbook written by the same author, or you can read the Little Book of Valuation. By reading this little gem of a book, you will get the big picture, a framework by which to understand the major concepts of valuation. You can then move on to other more complex mathematically oriented works. This book should be your first choice however, and thank you for reading this review. Richard Stoyeck

This is a fantastic book. It won't teach you how to invest, but whatever method you use, it will make you do better at it. It explains the financial part of investing in a very deep way. It covers both intrinsic valuation, i.e. discounted cash flow models (DCF), and relative valuation, which many of you are familiar with. P/B, P/S, P/E, EV/EBITDA, P/CASH FLOW, etc. It also shows how DCF and relative valuation are related. It covers a lot of other material that I have not put in this review. No book has taught me as much about the financial aspect of investing as this one. Dr. Damoderan is a very nice man. I have had a few questions over the years, and have emailed him, and he has responded always within 24 hours. (We have never met). This book is not an easy book, so I sent him an email, asking for problems so I could practice what is in the book. He directed me to his web site, where there are numerous problems, with solutions, (all free), and I would practice what I learned there. Who should not read this book? I do not have a financial back ground, so, I can tell you that if you are looking for a quick easy read, this book is not for you. (unless you have a financial background). However, for a serious investor, it is very important to understand what is in this book, and should be read. For a serious investor, I would wholeheartedly recommend this book.

I got turned on to the little book series with "The Little Book that Builds Wealth" that is still probably my favorite book, but this one was also an enjoyable, and quick read. I'd recommend it for those that have a mathematical aptitude or interest in managing their own portfolios, but aren't sure where to begin. It will give you a 5 hour mini-MBA so to speak. It will cover a lot of the concepts that are covered in graduate school when it comes to valuing companies, along with some of the formulas, so you can at least have a cursory overview of what to look for when investing in stocks. Will you be a day trader? Probably not, but maybe....

This book echoes some of the author's earlier works but whereas his other books are largely geared towards professional practitioners, The Little Book of Valuation is targeted at individual investors. In my opinion, Damodaran has carved a unique niche among authors of this genre. As a professor at a respected university, his books always draw on a solid theoretical foundation. A lot of other authors do the same. Where I think he distinguishes himself is the ability to bring pragmatic, real world slant to these topics. I have found his publications to be very readable yet hardly "dumbed down". In fact, I think this particular volume would make a great introduction on valuation for aspiring MBAs and finance students. The Little Book of Valuation starts by explaining the nuts and bolts of finance including topics such as time value of money and the concept of risk. A short explanation of financial statements is also included. Damodaran then goes on to describe intrinsic valuations including the subtle differences between cash flows to equity holders versus cash flow to the firm. Along with that the appropriate discount rates that apply to each are also explained. The book then quickly compares intrinsic valuation to relative valuation methodologies, stressing along the way the merits and disadvantages of each. When using multiples (price/earnings, price/book, price/sales) to do comparative valuations, he points out which financial metrics are the underlying drivers for each multiple. From there, the book delves further into subtopics such as valuing companies at different stages in their life cycles: early stage companies, mature companies and declining companies. There are also separate chapters that discuss valuation issues/techniques for banks and other financial entities, cyclical/commodity companies and a final chapter on valuing companies with significant intangibles. While the nature of the "Little Book" series means that they will be succinct and perhaps a little light on mind-numbing detail, I think this particular volume provides a very readable, even-handed approach to the topic of valuing financial assets. Damodaran consistently provides examples after he makes a point. Furthermore, the examples are real life rather than hypothetical situations. I struggled to get through the Copeland tome on Valuation. I wish Professor Damodaran had published his Little Book of Valuation years earlier . . . it would have been like having a nice set of training wheels to get me started . . . .

The author is a noted valuation author with several other books, much more indepth than this one. As an introduction to security valuation, it's good enough to get the job done, but I take issue with some of his methods. Pros: - Explains with clarity the different types of discounted cash flows (annunities, perpetuity, etc). - Gives good explanation as to the significant metrics behind valuation multiples (ROE in PE, etc, Net PM in P/S, etc). - Details why you should use historical averages, and not simply the most recently available metric for these calculations. - Financial institutions are notoriously hard to value, and his method here is probably the best I've come across. Cons: - My biggest complaint is his over-reliance on CAPM beta as a risk-metric. Numerous studies have shown that stocks with low betas routinely out-perform those with high betas, which is the exact opposite of what's supposed to happen, according to financial theory. In fact, the author even briefly glosses over why beta may not be a great metric to use, but then continues to do so through out the entire book. As Buffett says, any time you see finance use a Greek symbol, they're substituting theory for experience. - Doesn't give any alternatives to beta (WACC is no better, as it also includes beta) towards measuring risk. Should ignore beta completely and simply use the average market return over the past 200 or so years of 8 - 10% (I typically use 9). - The regression analysis part seems completely out of place in a book like this. - Likewise, his over-reliance on DCF is borderline absurd. Again, numerous studies have shown that most PROFESSIONAL analyst fail to accurately predict a firm's earnings over a short-term horizon (David Dremen has published many of these studies), so to assume a non-professional investor can with even remote accuracy predict cash flows 10 years into the future is ridiculous. Overall, it's good for an introduction on discounting cash flows and being able to value a financial institution, but his use of beta and 10 years worth of forecasting is what holds this down.

It seems like it should be a simple little book, but it actually packs quite a wallop. Aswath gives helpful and specific advice on how different approaches work best in specific situations when valuing companies. For example, the considerations in valuing a growth company are different from those when valuing a company that seems to be winding down. His writing is easy to follow and well explained without the pedantic academic rhetoric you would probably find in a text book. If you want to go further, he generously links to a lot more material on his university website. There is also a Youtube series of 15 minute videos that follows the content somewhat closely. Tremendous value and great instruction from a good teacher. This Little Book series of finance books is really excellent, with great writers and high quality content, and if the publishers should ever see my review, I hope they might consider adding a book on stock screening with an assessment of the metrics commonly available. Or is that already "What Works On Wall Street"?

I think this book is a must for people who want to better understand valuation. Damodaran does have a different approach/terminology than the mainstream in a lot of cases (this is what may confuse you if you're new to the topic) but it's well worth it to get you thinking and expand your valuation knowledge. A must in your finance bookshelf and it's a book I see myself skimming through in the future.

"The Little Book of Valuation" by Aswath Damodaran is an essential guide for investors, offering clear explanations of complex valuation techniques. Damodaran emphasizes the importance of understanding qualitative factors alongside quantitative analysis, providing practical insights and real-world examples. Whether you're a novice or experienced investor, this book is a valuable resource for mastering the art of company valuation and stock selection. Highly recommended.

This book is POWERFUL. You get some great tips to analyze all types of companies. A must read if You consider to diversify Your Portfolio with companies from different industries.

This book takes concepts and distills these into simple logical steps, and is far superior to the materials provided in my MBA class.

Although the book conveys the details in the most lucid manner, the reader has to be familiar with the basics of corporate finance. In fact this is the most easy to read finance guidebook that I have ever come across. This revises the concepts of corporate finance and conveys everything that you need to know about valuation in the most brief possible manner without compromising on the details and caveats of finance.

Perfeito.

If you are really serious about your investments, this book will take you to the next level. Popular reads are OK for a while but not sufficient to sustain your investing journey. After reading and understanding this book you are ready to go deeper in the world of stock valuation.