Gary Smith - Money Machine: The Surprisingly Simple Power of Value Investing

Thank you for downloading this AMACOM eBook.

Sign up for our newsletter, AMACOM BookAlert, and receive special offers, access to free samples, and info on the latest new releases from AMACOM, the book publishing division of American Management Association.

To sign up, visit our website: www.amacombooks.org

Gary Smiths Money Machine should be on the shelf of any investor right next to Security Analysis by Graham and Dodd.

Andrew D. Sloves, Former Managing Director, JP Morgan

Filled with common sense and an uncommon level of insight, Smith delivers a book that should be required reading for all investors.

Chris Nelson, Chief Financial Officer, Universal Studios Hollywood

Smith combines key concepts from finance, statistics, and psychology into a must read book for any investor.

Karl J. Meyer, Business Development, Kleiner Perkins Caufield & Byers

Money Machine is an essential read for any investor looking to improve their understanding of how to make money in financial markets today.

Mike Schimmel, Managing Director/Portfolio Manager, Kayne Anderson Capital Advisors

This is the most comprehensive book Ive read regarding faults in logic and math that plague investors, amateur and professional. This is an outstanding book!

Bob McClure, McClure Investment Management, LLC

A joyful crusade through the world of economics, behavioral science, value investing, market dynamics and their intersection with common sense. Gary Smiths Money Machine is a must read.

Simeon Nestorov, Managing Director, Berkeley Square Inc.

Smith has again done a masterful job of simplifying the complicated and provides an insightful fact-based, common sense tool for investing.

Joe Berchtold, Chief Operating Officer, Live Nation Entertainment

Smith is a brilliant writer who uses statistical analysis and common-sense storytelling to articulate his important message... Cash is King. I highly recommend this book to any serious long-time investor.

Scott Green, Venture Capitalist, 270 Capital

Psst! I got a tip for ya! Gary Smiths Money Machine is a rare pleasure--a book about investing that makes you laugh out loud. Smith uses a series of telling stories about investors, students, friends, and so-called experts to drive home his point that investing is about creating value, year after year, and not about yelling Buy! Sell! all day in response to the latest blips on the ticker board.

Charles Euchner, Center for an Urban Future

A modest investment of time with Smiths book will yield outsized returns to those looking to build personal wealth in a reliable and steady manner.

Bryan White, Founder, Sahsen Ventures

In Money Machine, Gary Smith does what he does best: he provides a clear, readable, accessible overview on the fundamentals of investing, its opportunities, and the pitfalls.

Sebastian Thomas, CFA, MBA, Portfolio Manager, Head of US Technology Research, Allianz Global Investors

ShockingAn economist who can be clear and funny while actually conveying great insights into rational and irrational approaches to stock market valuation! This book will be a great gift to give to my friends and clients who definitely need to read it.

Davis D. Thompson, Corporate Attorney

Both engaging and insightful, Money Machine appeals to anyone who wants to understand the forces that drive the stock market. Using simple and entertaining examples, Smith provides a practical guide to making smart investments.

Anita Arora, MD, MBA, RWJF Clinical Scholar at Yale University

In Money Machine, Smith dispels many common myths of technical data, data mining, and market bubbles through entertaining and engaging examples. A thoroughly enjoyable read.

Andrew Voth, CPA/CFF, CVA, CIRA/CDBV, CFE, Senior Director, Alvarez & Marsal

Over his more than 40 years of observing markets and teaching at some of Americas top academic institutions, Dr. Smith has accumulated a wealth of insights that he shares with you in Money Machine. If you want to increase your investing IQ, Id highly recommend this book.

Jeffrey H. Ellis, CFA, MBA, Managing Member, L Street Capital Management, LLC

The Surprisingly Simple Power of Value Investing

GARY SMITH

To James Tobin
For those who knew him, no explanation is necessary.
For those who didnt, no explanation could be sufficient.

Most people who buy and sell stocks have heard the story of the two finance professors who see a shiny $100 bill on the sidewalk. One professor is tempted, but the other cautions that if it were real, someone would have picked it up already. The lesson is supposed to be that, in the stock market, anything that looks like free money is an illusion. Some people actually believe thisI do not. Money Machine: The Surprisingly Simple Power of Value Investing makes clear why others should not believe it either.

Professor Smith reminds us of the South Sea Bubble, when even Isaac Newton bought stock in companies that lacked a compelling story but touted a whimsical expectation of reselling the stock at a higher price to an even bigger fool. More recently, investors bought into the same ill-founded illusions with Beanie Babies, gold, and dot-coms. At the other end of the spectrumfrom greed to fearthe 2002 and 2009 stock market crashes left suitcases full of $100 bills on the sidewalks.

So, how does an investor distinguish a bubble from a bargain? Both Professor Smith and I believe the answer is through value investing: thinking about the intrinsic value of a stock and not about the stocks old price or a guess of its future price.

Professor Smith clearly explains the two keys to being a successful value investor.

First, no one is able to predict how prices will wiggle and jiggle as fear and greed batter the markets. But you can think of stocks as money machines. Think of the cash you will receive if you own the machine (and leave yourself a margin of error).

Second, do not let lust or panic sway your investment decisions. Many investors had a hard time sitting on the sidelines when Yahoo, AOL, and other internet companies soared during the dot-com boom in the late 1990s, but value investors did exactly that, they sat. Many investors could not think about buying stocks when prices fell more than 40 percent between 2000 and 2002 and, again, between 2007 and 2009. Value investors did exactly that; they bought because those were buying opportunities of a lifetime.

Professor Smith also explains how you could find bargains even in ordinary timesfor example, in companies that are out of fashion and in closed-end funds selling at a discount. Some may think it counterintuitive that companies with analysts who are pessimistic usually do better than companies with analysts who are optimistic, or that stocks that are booted out of the Dow usually do better than the stocks that replace them... but not a value investor.

Let others make decisions driven by fear and greed, and thank them silently for the opportunities they give youfor the $100 bills they leave on the sidewalk. If you want to be a great investor, look for these $100 bills and do not be afraid to pick them up off the ground!