xii Introduction:TheQCulture
of thought. QQQ is an apt symbol for the most volatile index in
stoc kmar ket history.
In the Q culture, common sense is common nonsense, putting
price on a pedestal and all but ignoring business value. The Q trader
sees price as everything. The smart investor knows what value is.
She focuses on value first, and then compares value to price to see
if an investment holds the promise of a good return. That kind
of focus requires the investor to operate as a business analyst, not
as a market analyst or securities analyst and certainly not as a Q
trader.
This boo kdevelops a mind-set for business analysis as the an-
tidote to the Q culture. It discusses the tools of stoc kpic king and
highlights critical areas of thinking about markets and prices, and
businesses and managers. It builds a latticewor kof common sense
to fill the vast value void in today’s markets.
The boo kfirst shows you why it is a mista ke to operate as a
market analyst or to look to the market to reveal value when all it
can do is reveal prices. It then presents the tools to thin kabout
performance and value but also cautions about how financial infor-
mation can be distorted in ways that can mislead you. Accordingly,
it argues that an essential element of intelligent investing is a com-
monsense ability to assess the trustworthiness of corporate manag-
ers, principally the chief executive officer and board of directors.
The business analysis approach to investing shatters many myths
of investment lore prevalent in the Q culture though not unique to
it throughout history. For example, it rejects a distinction as perva-
sive as it is mistaken between growth investing and value investing
(or between growth stocks and value stocks). To be sure, some com-
panies show greater promise of earnings growth than others, but all
rates of growth are a component of value so this distinction, crys-
talized in the early 1970s and a growing fixation ever since, is of no
analytical value.
For another, the business analysis approach underscores a key
distinction between investing on the one hand and speculation or
gambling on the other. All investing involves ris kand in that sense
there is a speculative element in all of it. Intelligent investing, how-
ever, calls for a reasonably ascertainable valuation and comparison
to the price.
Leading examples of speculating and gambling include people
buying shares in IPOs or Internet start-ups they know little or noth-