Kenneth Jeffrey Marshall - Good Stocks Cheap: Value Investing with Confidence for a Lifetime of Stock Market Outperformance

Copyright 2017 by Kenneth Jeffrey Marshall. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

ISBN: 978-1-25-983608-4
MHID: 1-25-983608-8.

The material in this eBook also appears in the print version of this title: ISBN: 978-1-25-983607-7, MHID: 1-25-983607-X.

eBook conversion by codeMantra
Version 1.0

All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark. Where such designations appear in this book, they have been printed with initial caps.

McGraw-Hill Education eBooks are available at special quantity discounts to use as premiums and sales promotions or for use in corporate training programs. To contact a representative, please visit the Contact Us page at www.mhprofessional.com.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, securities trading, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

From a Declaration of Principles Jointly Adopted by a Committee of the
American Bar Association and a Committee of Publishers and Associations

TERMS OF USE

This is a copyrighted work and McGraw-Hill Education and its licensors reserve all rights in and to the work. Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hill Educations prior consent. You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited. Your right to use the work may be terminated if you fail to comply with these terms.

THE WORK IS PROVIDED AS IS. McGRAW-HILL EDUCATION AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill Education and its licensors do not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free. Neither McGraw-Hill Education nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom. McGraw-Hill Education has no responsibility for the content of any information accessed through the work. Under no circumstances shall McGraw-Hill Education and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages. This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise.

To MHM.

He picked the right girl.

First, my goofs. I failed to sell my Coca-Cola Company shares when they spiked past $80 in 1998. That price suggested that every man, woman, and child on earth had just pledged to drink a bathtub full of soda a week for life. And I knew that that hadnt happened.

Worse was Nike. I started selling it at $67 per share in 2010, concerned that its price-to-book ratio had swelled past three. But I knew that the treasured swoosh logo was carried on the companys balance sheet at precisely zero. Nikes earnings and stock price have both soared since then.

Lest my blunders be limited to consumer goods, in 2011 I passed on pipe manufacturer Mueller Industries. Its stock price had dipped following a drop in housing starts, a cyclical condition that always ends. And not only did I know that, I knew the company so well by that point that I probably could have installed one of its copper elbow fittings myself. Muellers operating income went on to double, and its stock split.

These are some atrocities perpetrated by your author. And there were more. Sometimes I did something wrong, and other times I failed to do something right. Some were errors of commission, others errors of omission. But none of them has cost me much. They were more about upsides forgone than losses suffered.

Thats a charm of value investing. It instills in one a caution that occasionally produces the unnecessary abstention, the premature sale, and the unjustified hold. But it flags disasters incomparably. For every triumph missed, a hundred disappointments are avoided. And thats a virtue of the discipline, not of the practitioner. Its available to anyone. But few ever pick up on it.

Of course, few ever pick up on just investing. They simply wont get it. They wont see a contribution made to a retirement account, or a deposit made at the bank, as part of a deliberate process of growing wealth. They wont view the commitment of capital today as a way to gain a larger claim on civilizations goods and services tomorrow.

Even if they buy stock in listed companies, they may not be investing. They may be merely speculating. I define speculating as the purchase of something now in the hope that it can be sold at a higher price later, with no consideration as to why that may be possible. Versus investing, nothing could be more different.

Of those who do understand investing, only a fraction ever get value investing. I define value investing as acting on the observation of a clear difference between price and worth.

Of the few who get value investing, only a fraction ever teach it. We could all fit in an elevator. Our lot is small because theres scant encouragement in academia to pursue the discipline.

Value investing is a subject of simplifications and approximations. It disdains the Greek letters and exactness that masquerade as a scientification of capital management. It champions the back of the envelope over the spreadsheet. It doesnt spotlight theoretical acumen, quantitative wizardry, or other hallmarks of professorial achievement. As such, its no sure route to tenure.

So what you get in me is a subset of a subset of a subset: an investor who is a value investor who teaches value investing. Expect twists.

I am not starting a fund. I state this because a commonand validreason for writing is to give potential investors insight into ones thinking. My motivation comes from a different place. I have seen enough people act against their economic interests that I want a book to throw at the next flare-up. Perhaps the page will triumph where the conversation did not.