Preface
There isnothing sodangerous as thepursuit of a rational
investment policy in an irrational world.
—John Maynard Keynes
LordKeyneswasnotalonein believingthatthepursuit of
truevaluebasedonfinancialfundamentalsisafruitlessonein
markets where pricesoften seemto have littleto do with
value.Therehavealwaysbeeninvestorsinfinancialmarkets
whohavearguedthatmarket pricesaredeterminedby the
perceptions(and misperceptions)ofbuyersandsellers,and
notbyanythingasprosaicascashflowsorearnings.Idonot
disagreewiththemthatinvestorperceptionsmatter,butIdo
disagreewiththenotionthattheyareallthatmatter.Itisa
fundamentalpreceptofthisbookthatitispossibletoestimate
valuefromfinancialfundamentals,albeitwitherror,formost
assets, and that the market price cannot deviate from this
value in the long term.
1 From the tulip bulb craze in Holland in the early
seventeenthcenturyto theSouthSeaBubbleinEnglandin
the1800stothestockmarketsofthepresent,marketshave
shownthecapacitytocorrectthemselves,oftenattheexpense
ofthosewhobelievedthatthedayofreckoningwouldnever
come.
Thefirsteditionofthisbookwasmyfirstattemptatwritinga
book,andhopefullyIhavegainedfrommyexperiencessince.
Infact,thiseditionisverydifferentfromtheprioreditionfor
asimplereason.Myotherbookoninvestmentvaluation,also
published by John Wiley & Sons, was designed to be a