Uncommon Sense: Investment Wisdom Since the Stock Markets Dawn

′Serious investors will find this book nearly impossible to put down.′
ROBERT P. MILES
author of The Warren Buffett CEO ′There are many outstanding Australian value investors. Michael Kemp is one of the best.′
ROBERT P. MILES, author of The Warren Buffett CEO ′This book will ensure that you′ll never look at charting, market timing or stock valuation the same way again.′
SCOTT PAPE, author of The Barefoot Investor ′Michael Kemp is one of Australia′s most talented and insightful investment authors.′
TONY FEATHERSTONE, former managing editor of BRW and Shares magazines

Demystify the complex world of investments and make your own investment calls.

Author Michael Kemp takes readers on a journey through four centuries of the stock market. He explores how the world′s greatest investors have achieved their success and demonstrates a set of reasoned investment principles that will allow you to successfully interact with the market.

This must–have guide to savvy investing helps you discover how to:

interact with the stock market in an informed way challenge the word of so–called investment experts learn from the great investors of the past perform your own stock valuations develop the knowledge and skill to make your own investment calls.

Uncommon Sense offers a logical approach to the complex investment marketplace and empowers investors to create their own investment strategies.

Foreword ix

About the author xi

Acknowledgements xiii

Part I: The limits of reason 1

0.9 Start thinking for yourself 3

1. The Pied Piper 9

2. The art of prediction 21

3. Why economics will never be a science 29

4. Forecasting the stock market 35

5. Does the stock market forecast the economy? 49

6. Can charts predict? 55

7. Market timing 65

8. Are computers the answer? 85

9. The efficient market hypothesis 97

10. Trader or investor? 107

11. Realistic expectations of returns 119

Part II: Stock screens and value metrics 125

12. Where to start: stock screen or triad of analysis? 127

13. Don t accept the PE ratio at face value 135

14. Earnings growth isn t always a good thing 145

15. Why do price to book ratios vary? 153

16. Selecting stocks by dividend yield 159

Part III: The genesis of stock valuation 167

17. It all started in Europe 169

18. Time to cross the Atlantic 185

19. The adoption of financial reporting 199

20. The modern era 209

Part IV: Calculating value 215

21. Intrinsic value and market price 217

22. Earnings and earnings growth 231

23. The discount rate 245

24. The formulae 265

Part V: Beating the stock market 277

25. The Durant–Dort Carriage Company 279

26. Searching for numeric constants 283

27. The human constant 291

28. Coin–flipping orang–utans (my first trips to Omaha) 297

Appendix A: Why book value differs from economic value 309

Appendix B: Debt analysis 311

Glossary 317

References 321

Bibliography 331

Index 337

MICHAEL KEMP has worked as a corporate financier in Australia and overseas. He is the author of Creating Real Wealth.