The Little Book of Investing Like the Pros. Joshua Rosenbaum
information provided herein is obtained or compiled from sources believed to be reliable, the Authors cannot and do not guarantee the accuracy, validity, timeliness, or completeness of any information or data made available to you for any particular purpose. Neither the Authors, nor the Publisher, will be liable or have any responsibility of any kind for any loss or damage that you incur in the event of errors, inaccuracies, or omissions.
Risk Investing involves risk including possible loss of principal. An investor should consider his or her own investment objectives and risks carefully before investing. There is no guarantee that investments will result in profits or that they will not result in losses. All investors need to fully understand the risks associated with any kind of investing he or she chooses to do. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark.
No Reliance The Authors will not be liable, whether in contract, tort (including, but not limited to, negligence) or otherwise, in respect to any damage, expense or other loss you may suffer arising out of or in connection with any information or content provided herein or any reliance you may place upon such information, content, or views. Any investments you make are at your sole discretion and risk.
Disclaimer of Warranty and Limitation of Liability In no event will the Authors, the Publisher, their affiliates, or any such parties be liable to you for any direct, indirect, special, consequential, incidental, or any other damages of any kind.
Introduction Why is this book different from all other investing books?
As you have probably noticed, there are quite a few investing books out there. Many of them were written by some of the world's greatest investors. So, why should you read our book?
Stock investing is more prevalent than ever, whether directly or indirectly through brokerage accounts, exchange-traded funds (ETFs), mutual funds, or retirement plans. Despite this, the vast majority of individual investors have no training on how to pick stocks, let alone basic financial literacy. And, until now, there hasn't been a truly accessible, easy-to-understand resource available to help them. The Little Book of Investing Like the Pros : 5 Steps for Picking Stocks was written to fill this void.
We believe the simplicity and accessibility of our stock picking framework is truly unique. Using real-world examples and actual Wall Street models used by the pros, we teach you how to pick stocks in a highly logical, step-by-step manner. Our goal is straightforward—to impart the skills necessary for finding high-quality stocks while protecting your portfolio with risk management best practices.
Our practical approach is designed to help demystify the investing process, which can be intimidating. This training will help set you apart from others who are largely flying blind.
Pilots require extensive training before receiving a license. Doctors must graduate medical school, followed by a multi-year residency. Even those providing professional investment advice require certification. But, anyone can buy a stock without any training whatsoever. While buying stocks on a hunch and a prayer may not endanger your life, it can certainly put your finances at risk.
In our original best-selling book, Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions, we developed a highly practical guide on valuation and corporate finance. Our step-by-step, how-to approach resonated with a broad audience, selling over 200,000 copies and still going strong. While our first book was designed largely for investment bankers, it attracted attention from professional investors.
We also received positive feedback from beginner investors seeking to understand Wall Street valuation techniques. Hardly a day passed without family and friends asking us about popular stocks—e.g., Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Google/Alphabet (GOOG), collectively known as FAANG. A popular line of questioning centered on a stock such as AMZN trading at $1,848 per share vs. FB at $205, with the read-through that FB was a bargain given the lower share price.
Though just one example, the prevalence of this type of thinking was yet another inspiration to write this book. Note: if it's not clear why comparing AMZN and FB on the basis of stock price as opposed to earnings, business model, performance trends, and other key metrics is fundamentally misguided, then this book is definitely for you. And even if you're square on that (and then some), we have a framework to help take you to the next level!
With the help of dozens of seasoned investors, we developed a concise 5-step framework for picking stocks in The Little Book of Investing Like the Pros: sourcing investment ideas, identifying the best opportunities, performing due diligence, determining valuation, and making the ultimate go/no-go decision. We also weave in key portfolio construction and risk management techniques. To assist your development, we provide real-world valuation, financial modeling, and portfolio management templates on our website: www.investinglikethepros.com
Our 5-step framework is designed to be sufficiently repeatable and flexible for various fundamentals-based investment styles. Most notably, these include value investing, growth, growth at a reasonable price (GARP),1 long-only, long/short, event-driven/special situations, and distressed. These investment strategies all share the common goal of unearthing stocks with meaningful upside potential, many of which are misunderstood, ignored, or underappreciated by the market.
Our approach towards simplifying the investment process is supported by a playing field that is arguably more level today than ever before. Historically, the discrepancy in access to information between institutional and individual investors provided a tremendous barrier. Individual investors generally didn't know how or where to access relevant data.
Today, all investors have unprecedented access to information and resources thanks to more stringent disclosure requirements and technological developments. There are powerful tools in the public realm to identify, investigate, and execute informed investment decisions. However, proper training on how to use them is critical. That's where our book comes in—namely, a framework for identifying opportunities among the thousands of publicly-traded companies in the market.
Successful application of our techniques requires fine-tuning as you gain experience with real-world investment decisions. Over time, you will develop your own distinct style and approach, inevitably borrowing from your professional and personal life. Great stock ideas are often inspired by everyday observations and passions. Your eventual portfolio will likely reflect your educational training, sector expertise, outside interests, and hobbies. Do you have experience in a particular industry? Is there a topic, sector, or trend that fascinates you?
Of course, this is just the beginning of a continuous process. The journey towards becoming a successful investor is by no means easy. Taking the next step will rely upon your own hard work, diligence, judgment, and analytical abilities. You also need to be comfortable with making mistakes early on. Focus on improving your process vs. the outcome. Even pros learn invaluable lessons from their losers, often more so than from their winners.
In a world where passive investing has proliferated, it merits revisiting the virtues of active investing. Passive investing is exactly as it sounds—you will perform in line with the market/sector, for better or worse. These investment goals work for many. Hence, the arrival of passive investing as a permanent fixture. But, a large portion of investors seek superior returns, which requires an active approach.
The passive approach treats good and bad stocks equally when allocating capital to an index fund or sector ETF. Common sense dictates that a superior approach would target winners and seek to avoid losers to drive above-market returns. For example, as brick-and-mortar retail began to disappear in the face of e-commerce, an ETF tied to the S&P 500 would have kept you invested in an underperforming sector. So, why not use your natural curiosity, smarts, and the tools in our book to aspire to do better?
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