Book Description
Guy Fraser-Sampson draws upon twenty years' private equity experience to provide a practical guide to mastering the intricacies of this highly specialist asset class. Aimed equally at investors, professionals and business school students, it starts with such fundamental questions as "what is private equity?" and progresses to detailed analysis of venture and buyout returns. It also unveils a totally new concept which looks set to revolutionise thinking in the industry: Total Return investing.
Often unfairly reviled, and frequently misunderstood, private equity differs from all other asset classes in various important respects, not least in the nature and timing of its returns, which require a whole new approach for those reared on more traditional investments such as bonds and shares. This book shows how a good grasp of the basic structure of private equity vehicles and returns (including the dreaded J-curve) can lead to full understanding of the techniques needed to measure and analyse performance.
Key points include:
- A glossary of private equity terms
- Venture funds and transactions
- Buyout funds and transactions
- Understanding private equity returns
- Analysis of historic returns
- How to plan a fund investment programme
- How to conduct effective due diligence
- Total Return investing
Customer Reviews:
Usefull and well-written.......2007-07-30
I was happy to review the author's first book on investment, having been familiar with his articles for many years, and was looking forward to this one too. I was not disappointed.
Fraser-Sampson is one of the world's leading experts on private equity, and it shows in the sheer quality of this book, page after page. Over twenty years' personal experience are coalesced into a mix of practical hints and technical analysis. Even though it is a subject I thought I knew well, it taught me many things that were completely new to me. I particularly liked the glossary of private equity terms, which explains many arcane phrases in everyday terms but also with welcome touches of humour.
I was surprised to learn that this is the only definitive textbook in the world on this exciting asset class, but a little research on Amazon backs this up. There are casebooks and books on specific aspects of private equity (usually venture capital and/or entrepreneurs raising capital) but nothing which looks at the whole spectrum of the subject from an investor's point of view.
I would imagine this book would be particularly useful to two classes of people. First, business school students and those taking up or seeking entry level positions in buyout or venture capital firms. Second, those looking to raise money for private equity funds, since this book gives a great "view from the other side of the hill" as to what LPs (investors in private equity funds) are looking for.
As with his first book, it is incredibly well written. He really does have a style all of his own. I would recommend it without doubt.
A well-written, comprehensive, and practical overview of the private equity field.......2007-07-18
Guy Fraser-Sampson does an outstanding job in introducing the world of private equity in this book. He starts off defining various concepts in this field, explaining the ways to analyze private equity returns and distinguishing between buyouts and venture capital. He follows with a comprehensive discussion of buyouts (including the various types of buyouts, analysis models, and historical buyout returns) and then an equally thorough investigation of venture capital (with a similar structure to that in the buyouts section). Mr. Fraser-Sampson wraps up with a discussion on due diligence and advice on planning your own investment program in private equity.
I greatly enjoyed the book. It is easy to read, and Mr. Fraser-Sampson presents the concepts in a clear and simple manner - suitable for readers completely new to private equity. I like that the author is unafraid to express his own opinions - whether on the state of transparency in the field, on future buyout returns in Europe, or on usefulness of anti-trust legislation. He furthermore makes sure to separate his thoughts from the pure factual data that he provides to support them.
Interestingly, the book does not simply focus on private equity in one area of the world - the United States. It also covers Europe and sometimes ventures (no pun intended) into other parts of the globe, which I think is a breath of fresh air from the typical finance books that concentrate on US markets only. I am pleased to see this, as I strongly feel that a world-wide outlook is very important in the business world today. And, as Mr. Fraser-Sampson concludes himself, we can learn good lessons by examining the state of the private equity field in various geographic locations: "However, history is cyclical and I now see exactly the same sorts of issues which plagued continental Europe in the past rearing their heads anew in developing private equity areas such as Asia and Latin America. For those in such places who are willing to listen, the European experience has some valuable lessons" (61).
I applaud the author for the amount of historical data present throughout the book - both scattered throughout the text and assembled into tables and diagrams. While most of the data comes from a single source (the VentureXpert system) and the author's own calculations based on that data, it is great to see the general trends in buyout and venture capital returns, fund sizes, etc. I also appreciate that, in a few places, Mr. Fraser-Sampson notes that some of the data may not be very reliable since it is new (which is especially important to the private equity field due to the J-curve phenomenon: fresh data often captures the state of the things on the downward portion of the curve). There is, however, one aspect of history that I would have liked to see represented more. It would have been nice to see several examples of interesting or famous buyouts and venture deals, together with their defining characteristics. While many examples are very briefly touched on, none are really explored in detail. For example, I was pretty surprised that, amidst an extensive description of buyout mechanics, there wasn't any mention of the RJR Nabisco LBO in the late 1980s, to which the author could apply, for instance, his discussion of various levels of debt when dealing with huge transactions.
Some neat small features in this work include concise chapter summaries and a glossary at the end of the book. Little things like that make it easier to reinforce concepts and look them up later. I found the chapter summaries especially helpful - each time I read a chapter summary, I was pleasantly surprised on how concisely and accurately it summed up the important ideas presented earlier. Also useful is the practical advice found in the last two chapters of the book - what a fund or company investor should look for when performing due diligence and how to actually plan your private equity investments program (with an emphasis on the Total Return outlook).
Finally, I'd like to mention something about the author himself. I was confused about one of the diagrams in the book (the one on p. 87, featuring the second scenario in analyzing a buyout return), and I e-mailed Mr. Fraser-Sampson with some questions. He replied almost immediately, clarifying the circumstances around the scenario and thanking me for bringing it to his attention, noting that he will make things more explicit in the next edition (strictly speaking, in the diagram on p. 87, the $20M value under "Yr2" is not a cashflow, since no recapitalization took place - debt was simply reduced without an outflow of equity; this hence technically lowers the shown IRR of 124% to 89%). Not only was Mr. Fraser-Sampson helpful, but he was also just very friendly and approachable. That really tops everything for me... I've e-mailed multiple authors before and have received no responses, yet Mr. Fraser-Sampson responded so quickly. I think it's fantastic when readers can ask an author to clarify concepts and receive insightful answers and comments. It brings the book to an entirely new, higher level.
The only problems I have with this book stem from the fact that I want to see more. Specifically, I would have liked to see the math behind the calculations in some of the numbers that the author presents. I also found myself looking up a lot of extra information outside the book about the IRR - how it is calculated and used. A more in-depth, separate section on IRR would have been great (the author does mention how the money multiple drives the IRR and not vice versa throughout various sections of the book, but a more consolidated discussion would have, in my opinion, been more helpful).
These are very minor cons, and some may argue that they aren't really cons at all, but rather an indication that the author did a splendid job in making me interested in the field of private equity. He wishes to keep his analyses and explanations simple and understandable without burdening the reader with hefty calculations or overly advanced topics. I can certainly respect that. But the absence of this information keeps the reader more at a "birds-eye view" level without allowing him/her to dig deeper into certain concepts. This is just something to keep in mind. In a strict classroom setting for a private equity course, this book would work well as a textbook when complemented by some sort of workbook with detailed analysis models and problems.
In conclusion, this book is an excellent introduction to the world of private equity. I knew very little about this field before reading this work, and I feel that it has given me an excellent well-rounded overview. The book is thorough, yet easy to read and understand. When the only cons I can think of are really just me wanting to learn more, there's not much else I can say about the book other than to highly recommend it to those new to the private equity field.
Pros:
+ clear and comprehensive presentation of the concepts
+ a more complete world-wide view on private equity, compared to most other books
+ lots of historical data on various aspects of buyouts and venture capital
+ great concise summaries at the end of each chapter and a glossary at the end of the book
+ practical advice in due diligence and planning your private equity investment program
+ the author himself is very responsive and helpful
Cons:
- could use more detailed analyses of real-world examples when discussing the structure and characteristics of buyout and venture capital deals
- no math shown for calculating many of the values presented
- lacks an in-depth discussion of advanced topics like the various uses of IRR and how to calculate it
Brilliantly written ! Makes very easy reading out of what are very complex issues........2007-06-29
I have had the advantage of reading the manuscript of this book in advance, and one of the comments on the cover is my own.
Unlike other books on the subject, this one does not dive straight off into complicated areas such as return analysis, nor does it deal with such nebulous matters as the GP/LP relationship (indeed, the writer states that he considers this last topic to be something of a red herring). Instead, the book sets out to be a comprehensive account of private equity from first principles onwards, and will guide you steadily through the intricacies of the asset class until you find yourself quite happily using very complex analysis models to look at buyout and venture returns. More importantly, it focuses on explaining the principles which underlie all of this, so you will actually understand what you are doing, and why. As the writer says repeatedly "don't just look at the figures - try to think what lies behind them."
Fraser-Sampson has twenty years experience of the private equity industry, and the depth and range of his knowledge shines through every page. I was a great fan (and a reviewer) of his first book "Multi Asset Class Investment Strategy", and ideally they should be read together. The first explains why you should be allocating 25% of your portfolio to private equity, and this one explains how you should actually go about it. Just as the first one came up with a whole new way of looking at investment in general, so this one makes some very innovative points, not all of which will make happy reading in some quarters. For example, he believes that private equity performance should be judged across an investor's whole allocation (what he calls Total Return investing) rather than, as presently, on just that small part of it which may be invested at any one time.
Both books are brilliantly written and make very easy reading out of what are very complex issues.
Book Description
TABLE OF CONTENTS
Chapter 1: The Basics of Risk Management This chapter introduces how banks work. It describes how they make money, how they often lose money, and how they try to manage their losses. It includes thirteen short case studies showing how banks have lost money.
Chapter 2: Risk Measurement at the Corporate Level: Economic Capital and RAROC Chapter Two discusses the meaning of capital and how the risks that a bank faces are related to the amount of capital that the bank should hold. It then describes the two fundamental building blocks of integrated risk measurement: Economic Capital and Risk Adjusted Return on Capital (RAROC).
Chapter 3: Review of Statistics Chapter Three is useful for those readers who do not have a recent working knowledge of statistics. It reviews the statistical relationships that are commonly used in risk measurement and provides reference material for the rest of the book. Examples are provided using financial loss data.
MARKET RISK SECTION
Chapter 4: Background on Traded Instruments This chapter gives an overview of the main types of traded instruments: bonds, equities and derivatives. It gives a qualitative description of the instrument, examples of calculating the instrument’s value and the basic risk metrics such as duration and the Greeks. This chapter is useful for those readers who are new to the finance industry.
Chapter 5: Market Risk Measurement This chapter describes the most common ways to measure market risks: Sensitivity analysis, Stress testing, Scenario testing, Sharpe Ratio and Value at Risk. It gives detailed examples of using each of the metrics.
Chapter 6: The Three Common Approaches for Calculating Value at Risk Value at Risk (VaR) has become the standard approach for measuring market risk. This chapter is devoted to explaining the details of the three common approaches to calculating VaR: Parametric VaR, Historical VaR and Monte Carlo VaR. We work though increasingly complex examples and compare the strengths of each approach. (Note: many readers will be particularly interested in this chapter because the name “VaR” is well known and has a certain mystery)
Chapter 7: Value at Risk Contribution The Value at Risk Contribution (VaRC) is a useful way of pinpointing the source of the portfolio’s risk. VaRC can break down the risk by instrument, trading desk or market risk factor. Examples are given for several types of VaRC.
Chapter 8: Testing VaR Results to Ensure Proper Risk Measurement This chapter discusses the procedures required by regulators to backtest VaR calculators to check that their predictions of losses are consistent with market events.
Chapter 9: Calculating Capital for Market Risk VaR is used as the basis for calculating both Regulatory Capital and Economic Capital for Market Risks. In this chapter VaR also extended to measure the risk of Asset Management operations.
Chapter 10: Overcoming VaR Limitations Although VaR is the best single metric for market risks, is has several limitations. The limitations and typical solutions are discussed in this chapter.
Chapter 11: The Management of Market Risk This chapter concludes the market risk section by describing how the results of risk measurement are used by management to identify the sources of risk. It also describes the process of setting VaR Limits. (Note: readers should be particularly interested in VaR Limits because it is difficult and an important element in controlling a bank’s risk).
ASSET/LIABILITY MANGEMENT SECTION
Chapter 12: Introduction to Asset Liability Management Asset Liability Management (ALM) is primarily concerned with the interest rate and liquidity risks that are created when commercial banks take in short term deposits from customers and give out long term loans. This chapter describes how those risks arise and the risk characteristics of different types of deposits and loans.
Chapter 13: Measurement of Interest Rate Risk for ALM This chapter discussed the primary techniques used to measure interest rate risk: Gap reports, Rate shift scenarios and Simulations
Chapter 14: Funding Liquidity Risk in ALM The measurement of liquidity risk is broken into three groups: expected, unusual and crisis events. Measurement techniques are given for each group.
Chapter 15: Funds Transfer Pricing and the Management of ALM Risks A key use of asset/liability measurement is the calculation of the fair price at which funds should be lent from one department to another within a bank. This is one of the keys to integrated risk measurement and is a critical component in measuring risk-adjusted profitability and setting prices to customers. A typical balance sheet is used to illustrate how transfer pricing works in detail.
CREDIT RISK SECTION
Chapter 16: Introduction to Credit Risk This chapter discusses the sources of credit risk and how measurement is used to manage the risks
Chapter 17: Types of Credit Structure For readers who are unfamiliar with lending operations, we discuss the ways that credit exposures are structured in commercial and retail lending. It also describes the calculation of credit exposure for derivatives trading operations and gives an overview of credit derivatives.
Chapter 18: Risk Measurement for a Single Facility This chapter shows how the Expected Loss and Unexpected Loss for a loan can be calculated from the Probability of Default, Loss In the Event of Default, Exposure at Default and the Grade Migration Matrix.
Chapter 19: Estimating Parameter Values for Single Facilities One of the main difficulties in credit risk measurement is the estimation of values for Probability of Default, Loss Given Default and Exposure at Default. This chapter discusses estimation techniques such as Discriminant Analysis and the Merton Model. It also gives parameter values that can be used as the basis for the reader’s own models. The parameter values are used in examples to demonstrate how the credit risk calculations are used.
Chapter 20: Risk Measurement For A Credit Portfolio: Part One To estimate the overall risk for a portfolio many credit instruments, we must examine the correlation between losses. This chapter describes the Covariance Credit Portfolio Model and the different approaches available for estimating default correlations. It also describes how the correlations can be used to estimate the Unexpected Loss Contribution and the Economic Capital for a single facility within a portfolio.
Chapter 21: Risk Measurement For A Credit Portfolio: Part Two This chapter describes the four other widely used approaches for estimating the risk of credit portfolios: the actuarial model, the Merton-based simulation model, the macro economic default model and the macro economic cashflow model used for structured and project finance. It concludes with a section describing how the models can be combined in a unified framework to create an integrated simulation of all the bank’s risks
Chapter 22: Risk Adjusted Performance and Pricing for Loans Knowing the economic capital for a loan, this chapter shows how to calculate the minimum price that should be charged to a loan customer. The analysis shows how to include multi-year effects such as grade migration. Illustrative examples are included. (Note: this chapter should be of interest to readers because loan pricing is another difficult and important subject that is rarely discussed in other books)
Chapter 23: Regulatory Capital for Credit Risk The Basel Committee on Banking Supervision (often called the BIS) is planning fundamental changes to the way that banks must calculate the capital that they hold. The new calculations will be very similar to the calculations described in the rest of this book for economic capital. This chapter summarizes the history of the Capital Accords then compares the different approaches that the BIS will allow. It also gives a standard plan for implementing the new Accords. (Note: this should be of interest to readers because the shift to BIS measurement is of major importance, it will be difficult for most banks, and it must be completed by 2005)
OPERATING RISK SECTION
Chapter 24: Operating risk The quantification of Operating Risks is on the frontier of the industry’s understanding of risk measurement. The risk estimation approaches can be categorized as either qualitative, structural or actuarial. These approaches are described including Key Risk Indicators and the BIS approaches.
INTEGRATED RISK SECTION
Chapter 25: Inter-risk Diversification and Bank-Level RAROC This chapter describes how all the models are linked to calculate Economic Capital and Risk Adjusted Profitability for the Bank as a whole. It concludes with of the steps normally required to implement the bank-wide measurement of Economic Capital and RAROC.pital and RAROC.
Customer Reviews:
Excellent overview of bank risk management.......2005-10-21
I really can't say enough about this book. From the perspective of a banker who wants to understand the fundamentals it is comprehensive, well organized and presented in a style that makes understanding the materials easy (or as easy as can be expected given the topic).
I recently took a copy to an Fx class I presented to the central bank staff in Azerbaijan. They liked the book so much that I was forced (not literally - maybe 'encouraged' would be a better word) to leave my copy behind. I promptly ordered another on my return.
While there are certainly more advanced texts on this same topic, I have yet to see one that does a better job of communicating the core concepts.
Great job!
Nice Overview.......2004-08-30
It was a nice overview of some existing models but it lacked the drill down needed for the next step. I did not find that it allowed you to handle actual data.
Fantastic book.......2003-05-23
Moving from academia to the real world is made much smoother with this great text by Dr. Marrison. This book integrates interest rate, liquidity and credit risk with bank management perfectly. Anyone interested in gaining a strong economic background with a quantitative degree like myself will find this book extremely useful.
One of the Best Books for Risk Management.......2002-10-23
Marrison has written an outstanding book on risk management. What is attractive about the treatment is the fact that it covers all aspects of risk management for financial institutions. Lots of books focus only on "new" techniques (VaR, portfolio credit risk models) or only on "traditional" techniques (credit analysis, ALM). Marrison treats them all, and uses capital allocation as a unifying theme.
Two previous reviews that suggest Marrison is too basic or merely repeats other authors are, in my humble opinion, dishonest. Marrison is a sophisticated book for sophisticated readers who are new to risk management. This includes MBA students taking courses on the capital markets or risk management. It also includes professionals working in their first risk management position. Marrison did not invent VaR or ALM, but authors of other books did not invent these concepts either. An author's task is to describe established concepts in a manner that is accessible to and useful for his audience. In this respect, Marrison's book is a dramatic step forward. His choice of topics, organization and writing are superb.
One of those previous reviews recommended that you read books by certain other authors instead of Marrison. Of those books, the only one that Marrison competes with is Jorion's Value-at-Risk. Marrison is an order of magnitude better than that book. The other books cover unrelated topics or are more advanced treatises on specific topics. You might graduate to such books from Marrison, but they are not alternatives to Marrison.
Finally, you can't beat the price on this book. Marrison simultaneously offers a bargain AND one of the best books available on risk management.
A great primer.......2002-09-11
Chris Marrison's book is something I have been seeking for a very long time. It is well organized and easy to read. I have spent several years in strategic financial services consulting, wherein a strong foundation in risk measurement concepts and tools is essential for consultants across experience levels. Though having studied undergraduate finance and statistics, I ended up developing my rudimentary (and incomplete) knowledge of risk measurement in a very ad-hoc, context-specific and inefficent fashion. Now an MBA student at Harvard, I come across peers also seeking to understand the business, technical and practical aspects of risk measurement, as conceptually, 'risk management' is a common idea but an abstract practice for many professionals. There is no other textbook I've come across that addresses the essentials of risk measurement in as tangible a manner. I will not hesitate to recommend this book as a great primer to fellow students. The only caveat I offer is that this book is for those truly interested in jumping into the practical applications of risk measurement - for more of an overview of risk management theory, or esoterica for that matter, you're better off looking elsewhere.
Average customer rating:
- Unnecessarily Complex
- A finance textbook full of errors and holes
- A Wonderful Approach to Corporate Finance
- Good basic overview of finance intersecting corp strategy
- Missed the mark! Poor coverage of contemporary issues...
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Financial Markets & Corporate Strategy
Mark Grinblatt , and
Sheridan Titman
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Book Description
The authors began writing the First Edition of this textbook in early 1988. It took almost 10 years to complete this effort, because they did not want to write an ordinary textbook. Their goal was to write a book that would break new ground in both the understanding and explanation of finance and its practice. They wanted to write a book that would influence the way people think about, teach, and practice finance. A book that would elevate the level of discussion and analysis in the classroom, in the corporate boardroom, and in the conference rooms of Wall Street firms. They wanted a book that would sit on the shelves of financial executives as a useful reference manual, long after the executives had studied and received a degree. They were successful in their endeavor. The success of the first edition of Financial Markets and Corporate Strategy was very heartening. The market for this text has expanded every year, and it is well-known as the cutting edge textbook in corporate finance around the world. The book is used in a variety of courses, both for introductory courses and advanced electives. Some schools have even changed their curriculum to design it around this text. The authors have developed this Second Edition based on the comments of many reviewers and colleagues; producing what is a more reader-friendly book. The most consistent comment from users of the first edition was a request for a chapter on the key ingredients of valuation: accounting, cash flows, and basic discounting. This ultimately led to a new chapter in the text, Chapter 9, which is currently available in the "Sample Chapter" section of the book's website. In almost every chapter, examples are updated, vignettes changed, numbers modified, statements checked for currency and historical accuracy, and exercises and examples are either modified or added to. The goal of the Second Edition is to make the book ever more practical, pedagogically effective, and current.
Customer Reviews:
Unnecessarily Complex.......2006-08-28
Author devotes 2 pages to mathematically prove & philosophically justify that a manager should chose the highest NPV project before chosing the next highest NPV project. Such logic continues ad infinitum throughout the 800+ page text. Time for 3rd Ed.
A finance textbook full of errors and holes.......2005-05-07
I am a postgraduate student in finance and this book is on my reading list for corporate finance. I must say that I am not very pleased with this book. First, it seems to skip around from chapter to chapter with no real logical organizational structure. Second, it is full of typos and mistakes -- some that are quite dangerous for a proper understanding of the material. Third, it does not develop fully the statistically techniques in Chapter 4 that it builds on in later chapters. This is a major problem in my opinion. What saves this book from the lowest rating is that it does discuss empirical studies and journal articles, and it does not do an entirely awful job about the more qualitative subjects like adverse selection and capitalization policy.
For what it's worth, I received my undergraduate degree at Wharton and am now at the London School of Economics. Instead of this book, I recommend Brealey and Myer's Principles of Corporate Finance. This is what I used as an undergraduate and is what seems to be the de facto textbook in the top undergraduate and MBA programs.
N.
A Wonderful Approach to Corporate Finance.......2005-04-12
I will admit this book does not take the standard approach to learning corporate finance. The authors discuss a wide variety of common topics, ranging from market models, option valuation, capital structure concepts and decisions, to more specialized topics such as corporate governance and financial risk management.
What is unique about this book, though, is that the authors encourage students to think about problems more broadly than one often sees in introductory texts and courses. For example, the authors encourage the use of decision trees (i.e. binomial models) to value a wide range of assets, not just stocks. If one can value a stock option using a binomial tree, why not use the same framework to value a plot of undeveloped real estate, an untapped mine, or any other "real option" owned by a company?
Another reason this text is excellent is because the authors include a vast survey of recent financial and economic literature relevant for the financial decision-maker. Highly developed markets depend on the signaling of information between investors and management, creditors and debtors, customers and suppliers, and so forth; understanding the implications of these interactions and their subsequent effects is of primary importance to decision-makers.
For example, the "pecking order" theory of capital structure is one of the most well-known concepts in finance, but nonetheless often misunderstood (if you want proof of this, why did investors respond so enthusiastically to every IPO in the late 1990's?). Instead of glossing over an explanation of the theory, the book thorougly explains it and provides problems where the reader can actually work through a simplified model that really reinforces the concept.
While this book served as a good introduction to a wide scope of problems in finance, it was most useful because it helped me to apply economic tools not just to solve but to understand financial problems. The use of decision trees in the simplified, binomial model setting helped me to understand option/project valuation and risk-netural valuation, the linchpin of no-arbitrage pricing. It also has perhaps the most thorough, lucid explanation of Arbitrage Pricing Theory (APT) I've seen anywhere- for a practitioner trying to understand factor models, this chapter alone makes the book worth it.
I understand that this is a very difficult book and that the problems are beyond what one may expect in a MBA-level course. Nonetheless, finance is an increasingly competitive field whose employers are starting to demand more analytical skills and intiution from recent graduates. In response to the reviewer who said this text is not suitable for CFA preparation, I do agree with that sentiment. First, the CFA program is designed for self-study that any motivated and capable professional can handle, while Grinblatt/Titman is clearly appropriate for a rigorous MBA-level sequence in corporate finance. Second, the CFA exam emphasizes asset valuation and portfolio management, while this book stresses financial decision-making from a manager's standpoint.
While I normally don't like reviews that justify their opinions by offering credentials, I also work on Wall Street and I find the concepts taught in this book to be quite relevant in handling real-world problems.
Good basic overview of finance intersecting corp strategy.......2005-02-25
I bought this book as a recommended supplemental text for a course in Corporate Finance in the MBA program at the U of Michigan Business School. I am very glad to have this book on my shelf of financial books and have benefited from it more than once.
I can recommend it to you strongly by praising it for these reasons:
1) It puts practical flesh on the financial model bones you learned in your first course on finance. There are very good discussions of the basic and well-known fundamental theories and models, but the authors also share with us what tends to happen in the real world. And isn't that what each of us need to add to our theoretical thinking?
2) Each chapter has effective summarizing Key Concepts and Key Terms with plenty of problems to work through and a list of References and Additional Readings that enable the reader to dive deeper into the topic of the chapter just read.
3) The book is helpfully organized into six Parts that provide the framework for the discussion. Parts 1-3 are a review of "Financial Markets and Instruments", "Valuing Financial Assets", and "Valuing Real Assets". This foundation gives the student a good grounding in order to see how these principles are used in the work of managing the capital structure of a corporation. Parts 4-6 discuss the "Corporate Financial Structure", "Incentives, Information and Corporate Control", and "Risk Management". These last three sections are the real meat of the book and where a great deal of its value to the business student lies.
4) Each of the Parts has an effective and brief introduction that sets the tone for what is to be studied. Even better, at the end of each the six Parts there are two very helpful summary sections: "Practical Insights" and "Executive Perspective".
This is a specialized topic. But it is an important topic. This is a very good book that can help a serious student get grounded in some very important principals necessary to managing the financial issues facing every corporation. I recommend it.
Missed the mark! Poor coverage of contemporary issues..........2004-12-22
This text is just below par for MBA / CFA or professional use. The quality of research is very poor. I almost bought this book recently but changed my mind instead for Brigham's "Intermediate Financial Management".
Compared to other finance texts I've used before such Reilly's "Investment Analysis & Portfolio Mgt." or Chew's "New Corporate Finance", Grinblatt's text is way way behind and offers nothing new and of value to my research & professional everyday use....
DON'T BUY this lousy book!
Book Description
"Aswath Damodaran is simply the best valuation teacher around. If you are interested in the theory or practice of valuation, you should have Damodaran on Valuation on your bookshelf. You can bet that I do."
-- Michael J. Mauboussin, Chief Investment Strategist, Legg Mason Capital Management and author of More Than You Know: Finding Financial Wisdom in Unconventional Places
In order to be a successful CEO, corporate strategist, or analyst, understanding the valuation process is a necessity. The second edition of
Damodaran on Valuation stands out as the most reliable book for answering many of todays critical valuation questions. Completely revised and updated, this edition is the ideal book on valuation for CEOs and corporate strategists. You'll gain an understanding of the vitality of todays valuation models and develop the acumen needed for the most complex and subtle valuation scenarios you will face.
Customer Reviews:
Very good and very useful book.......2007-09-03
Very useful book for every Investment analyst.
Special credits to Amazon for their perfect shipping - 10 days from order to delivery in BG with standard shipping option!!!
The best valuation book there is.......2007-05-19
This book is for individuals that are serious about valuation. Professor Damodaran provides a clear framework regarding key issues that need to be addressed during company valuation.
This is a must read.
Book Description
In today’s volatile financial environment, growing numbers of investors are looking to flee the stock market in search of safer ground. While the bond market has often been a “safe haven,” confusing new bonds and bond funds make it increasingly difficult for unfamiliar investors to choose the correct fixed income investments. The Bond Book provides investors with the information and tools they need to make bonds a comforting, important, and profitable component of their portfolios. Thoroughly revised, updated, and expanded from its bestselling first edition, this all-in-one sourcebook includes: *A new section on using the Internet to research, buy, and sell bonds *A new chapter devoted to increasingly popular foreign bonds *Detailed information on the inflation-linked Treasury bonds *Explanation of the new categories of bond funds *Tips on how to evaluate and buy bond funds
Customer Reviews:
A solid introduction.......2007-09-28
A great introduction to bonds and there place in a portfolio. The perfect place for the individual to start if they are considering purchasing individual bonds for their portfolio.
However, anyone looking for more in-depth information and strategies will likely be disappointed. Relatively little information about Zeros, TIPS and other products that are likely to be of interest. Start here, and then increase your knowledge with a title specific to your interests (i.e. municipal bonds, etc.).
God book but too general.......2007-01-04
I ordered this book for my business library. I enjoyed the book, but if you want more specifics on the methods of detailed bond calculations, I would recommend a good financial investments text book.
Primer on Fixed Income Products.......2005-09-09
Am nearly finished reading the 2nd printing of this excellent tutorial. Although I have been an avid buyer & seller of fixed income products for many years, the author did a superb job of furthering my mid-level expertise especially in the area of municipal bonds. Her plain language explanations were most welcome as opposed to the plethora of financial techno-babble tomes that share the bookshelf. 5 Stars without reservation.
Too Complicated.......2005-04-19
Thau over complicates her points. The book is too difficult to understand. I am an attorney who has been investing in stocks and bonds for over 10 years. This book is not appropriate for any level investor.
Highly Recommended!.......2004-12-22
This is an accessible introduction to bonds by a financial professional whose first book - as unlikely as it may seem - was a study of Max Jacob, the French poet. The literary background of the author, Annette Thau, may account for her book's clear, easy-to-read style. Most authors who write about bonds tend to get lost in the complex mathematics and specialized jargon of the bond markets. Not Annette Thau. Whether you are an individual investor trying to balance your portfolio with bonds, or a student of finance looking for a more lucid explanation of the subject than you can find in your textbooks, we highly recommend this book to you.
Book Description
In Investors and Markets, Nobel Prize-winning financial economist William Sharpe shows that investment professionals cannot make good portfolio choices unless they understand the determinants of asset prices. But until now asset-price analysis has largely been inaccessible to everyone except PhDs in financial economics. In this book, Sharpe changes that by setting out his state-of-the-art approach to asset pricing in a nonmathematical form that will be comprehensible to a broad range of investment professionals, including investment advisors, money managers, and financial analysts. Bridging the gap between the best financial theory and investment practice, Investors and Markets will help investment professionals make better portfolio choices by being smarter about asset prices.
Based on Sharpe's Princeton Lectures in Finance, Investors and Markets presents a method of analyzing asset prices that accounts for the real behavior of investors. Sharpe makes this technique accessible through a new, one-of-a-kind computer program (available for free on his Web site, at http://www.stanford.edu/~wfsharpe/apsim/index.html) that enables users to create virtual markets, setting the starting conditions and then allowing trading until equilibrium is reached and trading stops. Program users can then analyze the final portfolios and asset prices, see expected returns, and measure risk.
In addition to popularizing the most sophisticated form of asset-price analysis, Investors and Markets summarizes much of Sharpe's most important previous work and reflects a lifetime of thinking about investing by one of the leading minds in financial economics. Any serious investment professional will benefit from Sharpe's unique insights.
Customer Reviews:
good new book for good price.......2007-09-06
good new book for good price. of all the books on the subject, this is by far the easiest to read.
Important read for professional investors.......2007-08-23
An important, relatively recent book by William Sharpe, a Nobel Prize winning economist and Stanford business prof. Not for the rank-and-file investor; but much useful information for pros and teachers of finance. Last chapter contains a summary of very useful advice suitable for anyone who invests in stocks.
"Normative Issues in a Positive Context".......2006-12-05
William Sharpe, who really needs no introduction, has made major contributions to some of the most influential discoveries in financial economics. From his parsimonious diagonal model which simplified the use of Markowitz' normative (prescribing how investors should behave) mean/variance approach to portfolio choice to the positive (describing how investors actually behave) Capital Asset Pricing Model, Professor Sharpe clearly approaches -- even from his earliest investigations - financial economics from a pragmatic perspective. Of course that work contributed to his selection in 1990 as a co-recipient (along with Harry Markowitz and Merton Miller) of The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.
In addition to his academic pursuits, Professor Sharpe has also been commercially successful, as a RAND economist, and as President, Chairman and/or Director of several enterprises related to investments. Of course, practitioners may know him best for his famous "reward-to-variability" ratio which we all know as the Sharpe ratio. Professor Sharpe has also made important fundamental contributions to options valuation, asset allocation implementation, and returns-based style analysis.
His pioneering books are standard text assignments for both undergraduate and graduate students of finance; these include Portfolio Theory and Capital Markets (McGraw-Hill, 1970 and 2000), Asset Allocation Tools (Scientific Press, 1987), Fundamentals of Investments (with Gordon J. Alexander and Jeffrey Bailey, Prentice-Hall, 2000), Investments (with Gordon J. Alexander and Jeffrey Bailey, Prentice-Hall, 1999). Now we are fortunate as an industry to have Professor Sharpe's latest book, Investors and Markets: Portfolio Choices, Asset Prices and Investment Advice (Princeton University Press, 2007), available.
Investors and Markets is the culmination of a series of three lectures Professor Sharpe gave at Princeton University in May, 2004. The lectures, titled "Asset Prices and Portfolio Choice" are designed to help individual investors make good saving and investment decisions, and Professor Sharpe is the first author I have seen to treat both asset pricing and portfolio choice as a single subject in an attempt to do so. The book is also a nice departure from the well-worn mean/variance framework (which places restrictions on beliefs), relying instead on the state/preference approach (which places restrictions instead on tastes) originally developed by Kenneth Arrow and Gerard Debreu. Although it relies on a discrete-time formulation, one advantage of the state/space framework is that it accommodates both consumption preferences and production outputs. Because there are (literally) an infinite number of future states of the world, closed-form derivations are nearly impossible and simulation is required in this context if we are to achieve equilibrium. To do so, Professor Sharpe built a simulation program called APSIM (Asset Pricing and Portfolio Choice Simulator), which was not available a couple of years ago when the lectures happened but since then he has made freely available on his website, [...].
Professor Sharpe's original Princeton Lectures are organized into 1) Equilibrium, in a single-period setting with homogeneity of investor expectations, 2) Diversity, in a setting where investors have heterogeneous expectations, and 3) Protection, a world in which investors have access to spanning instruments such as principal-protected notes. This is also largely the sequence of the book, which is organized into discussions of equilibrium, preferences and prices in chapters 1-4, which basically comprise Lecture 1; positions (reflecting preferences), and predictions (reflecting disagreement among investors) in chapters five and six, material primarily from Lecture 2, and protection and advice in chapters seven and eight, which is composed mainly of material from Lectures 2 and 3. The book concludes with four simple recommendations for personal investment: diversify as broadly as possible; economize on unnecessary costs; incorporate the circumstances and preferences of the individual client in the portfolio decision; and contextualize portfolio choice vis-à-vis asset pricing, keeping in mind the distinction between investing versus betting, desire for principal protection, and the potential trading impact of the investor when he or she eventually requires liquidity.
In Investors and Markets, Professor Sharpe is "primarily concerned with helping individual investors make good saving and investment decisions - usually with the assistance of professionals such as financial planners, mutual fund managers, advisory services, and personal asset managers." Although this book may prove tough going for the layperson, all professionals in the asset management industry would do well by their clients to buy, read and re-read it ... the clients will certainly benefit.
Book Description
Managing Bank Capital explains proven techniques available in the management of bank capital that will help maximize shareholder value. This second edition has been fully updated to incorporate significant developments, such as the modeling of credit risk, and includes new sections with more technical information and advanced analysis.
Customer Reviews:
Excellent overview and detail on economic capital for banks.......2006-09-06
I bought this book hoping it would quickly bring me up to speed on key concepts in Economic Capital in the financial institutions industry. This book was simple enough for a relative novice to follow, and went into enough detail that I think most people would get something out of it. I also thought the book was well organized-- each section had a summary chapter that explained what the subsequent chapters in that section would cover so you could quickly skim or deep dive on various topics. The book was a bit dated in the sections on Basel, since it was written before Basel II was completed. Overall, an excellent introduction to Economic Capital and I was happy with my purchase.
Helpful Concepts, Lacking Implementatin Steps.......2002-07-30
With all the attention paid to bank capital management, this book is helpful in describing the concepts. However, it is not quantitative enough. The step-by-step of capital allocation for a given asset class of varying risk levels is lacking. For example, how should the bank treat the sub-prime portion of its credit card or auto loans in the capital allocation? I wish it were more specific. Could Providian or Capital One have directed the capital away from high risk loans, had they followed the advice of the book?
A Must-Read Book for Shareholder Value Management.......1999-06-05
Chris Matten provides a comprehensive guide to applications of RAROC and shareholder value for managing bank capital and compensating bank executives and traders. The author provides particularly good sections on how EVA, shareholder value, and other earnings based measures can be manipulated and abused. This is not the sort of book which the corporate finance shareholder value crowd would likely read, but is one which they need to read.
Excellent only book on the economic allocation of capital........1998-04-26
Mr. Matten's insightful work highlights how rigid appliction of the Basle Accords can lead to capital misallocation. He then provides insightful suggestions, with good examples, on how to better allocate bank capital by discriminating between borrowers on the basis of risk, all the while remaining within the basle guidelines. Mr. Matten points to the need for sophisticated mathematical-statistical analysis but does not dwell on the technicalities, making the book accessible to non-rocket scientists. All in all, a highly recommended book.
Great book, but watch out for typos.......1997-12-16
For a comprehensive approach that brings the reader from Cooke through RAROC, this book is very good and has no competition . What basic explanations of statistics theory you need in order to follow the main 'story' is included discreetly, so advanced readers shouldn't be bothered by them. This being said, beware the errors -- they exist throughout: for the price that Wiley Press is able to get in light of the lack of competition from another good RAROC capital allocation book ($69 last year, $95 now), it hopefully has caught and corrected them. Caveat emptor.
Product Description
For financial and corporate executives, treasurers, portfolio managers, investment bankers, traders, actuaries, modelers, academics and regulators, this book brings you face-to-face with the leading experts and is a valuable reference for anyone involved in the business of ALM at this critical juncture.
Book Description
Praise for Structured Finance & Insurance
"More and more each year, the modern corporation must decide what risks to keep and what risks to shed to remain competitive and to maximize its value for the capital employed. Culp explains the theory and practice of risk transfer through either balance sheet mechanism such as structured finance, derivative transactions, or insurance. Equity is expensive and risk transfer is expensive. As understanding grows, and, as a result, costs continue to fall, ART will continue to replace equity as the means to cushion knowable risks. This book enhances our understanding of ART."
—Myron S. Scholes, Frank E. Buck Professor of Finance, Emeritus, Graduate School of Business, Stanford University
"A must-read for everyone offering structured finance as a business, and arguably even more valuable to any one expected to pay for such service."
—Norbert Johanning, Managing Director, DaimlerChrysler Financial Services
"Culp's latest book provides a comprehensive account of the most important financing and risk management innovations in both insurance and capital markets. And it does so by fitting these innovative solutions and products into a single, unified theory of financial markets that integrates the once largely separate disciplines of insurance and risk management with the current theory and practice of corporate finance."
—Don Chew, Editor, Journal of Applied Corporate Finance (a Morgan Stanley publication)
"This exciting book is a comprehensive read on alternative insurance solutions available to corporations. It focuses on the real benefits, economical and practical, of alternatives such as captives, rent-a-captive, and mutuals. An excellent introduction to the very complex field of alternative risk transfer (ART)."
—Paul Wöhrmann, PhD, Head of the Center of Excellence ART and member of theExecutive Management of Global Corporate in Europe, Zurich Financial Services
"Structured Finance and Insurance transcends Silos to reach the Enterprise Mountaintop. Culp superbly details integrated, captive, multiple triggers and capital market products, and provides the architectural blueprints for enterprise risk innovation."
—Paul Wagner, Director, Risk Management, AGL Resources Inc.
Customer Reviews:
great expertise knowledge.......2007-10-23
This book provides a great details and knowledges about structured finance. If you are interested in the overall depth understanding about this area, this book is a good buy.
Book Description
A comprehensive, accessible, and innovative approach to a potentially devastating problem.
When a firm's actual earnings fall significantly short of expectations, it's not just the company that suffers. Lenders, equity investors, accountants, auditors, and consultants can also take a hit from this "earnings surprise."
Financial Warnings is designed for one purposeâto make sure that such a shortfall never undermines your financial security. Clearly and systematically, this unique practical guide helps you:
- Understand the many causes of earnings surprises, including fraud, overstated revenues, undervalued liabilities, and many more
- Identify the early warning signals associated with particular earnings surprises, so you can take prompt corrective action
- Prevent earnings surprises from happening in the first place by improving the quality of earnings forecasts
Financial Warnings comes complete with a unique early warning system to put you on the alert for potential trouble, foolproof checklists to help you spot those "yellow flags," a convenient sustainable earnings worksheet to sharpen your earnings forecasts, and plenty of vivid case histories to show you how to anticipate and avoid earnings surprisesânot just on paper, but in the real world.
A material difference between a corporation's expected and actual earnings, otherwise known as an earnings surprise, can spell big trouble for lenders and equity investors, to say nothing of the company in question. The failure to anticipate a negative result can threaten a lender's prospects for loan repayment, cause investors to absorb heavy losses, and trigger substantial losses on positions in equity securities.
Dedicated to the principle that "forewarned is forearmed," this book provides accountants and other users of financial statements with the resources needed to avoid these damaging financial discrepancies. Charles Mulford and Eugene Comiskey employ numerous case studies to examine and define these discrepancies and classify earnings surprises according to their major causes: changing economics, fraud, and aggressive application of GAAP. They then examine the results of a survey of bankers and develop a system for rating earnings surprise potential. This Earnings Reversal Score concisely categorizes cautionary signals, such as profitability, liquidity, and management-related early warnings, enabling accountants to recognize problems and take timely corrective measures.
Financial Warnings helps improve the quality of earnings forecasts as well. With the aid of a detailed worksheet and a pair of extended case studies, you'll learn how to locate material nonrecurring itemsâa major cause of earnings surprisesâand determine a firm's sustainable earnings base more accurately. You'll discover how to pinpoint differences in the book and market values of assets and liabilities, which, if undetected, can also result in earnings surprises. In addition, you'll learn the early warning indicators of fraudulent financial reporting, as well as crucial information on the role and responsibility of auditors in detecting such fraud.
An important resource for accountants, executives, CFOs, and company auditors, Financial Warnings is an indispensable guide for investors and others who depend on the accuracy of earnings projections. Even if you have only a tentative understanding of basic accounting issues, this easily accessible presentation will help you develop the knowledge and skills you need to formulate more accurate earnings expectations and avoid the potential disasters caused by earnings surprises.
Customer Reviews:
An Invaluable Book that rings the bell loud and clear.......2004-09-23
Although this book looks outdated but I am sure it sounds loud and clear especially when we are so hot-headed about the Internet Age and Knowledge Management and in most cases have forgotten about what are the Warning Signs we have to watch for particularly when we are opting to invest in a new stock of the new age.The Author is a respected scholar in the field of Finance and I admire every book of his and has spent the money to have every book he has written but most of all, I feel this book is the best. Read it and you will have things to remember everyday.
Gem!.......2002-11-07
Impeccable, a must read for investors, bankers, corporate finance pros. Highly recommended.
Best financial book for your money........2002-04-18
The funny thing is that I have read over 20 books on financial analysis and investing, and I believe that every penny that I have spent on this book was well worth it. The price of the book scared me at first, but where all of the other books that I read fell short, Financial Warnings did not. I was very impressed with the detail to which the book describes each investment scenario. There is no shortage of financial warnings to look out for. In fact, I was shocked to learn of how many warnings lenders and investors should be aware of. Not only has this book taught me about what to avoid, but also about what to buy. Did you know that the CEO or CFO going through a divorce is a financial warning? Did you know that a company entering a new business is a financial warning? Did you know that beating earnings expectations by one penny every quarter is a financial warning when your competitor fell short of expectations? This is a must read. Reading Financial Warnings has changed my life. It is a must read.
Sans pareil!.......2002-01-28
The book is an excellent treatise which provides the readers a systematic framework for figuring out whether the books have been manipulated or if the accounting has been aggressive, through finding out non-recurring items in the income statement and balance sheet. I have tried other books but, they just do not compare with this treatise. The book uses a systematic step-by-step approach which introduces the reader to how to read the fine print. This book should be invaluable to finance and accounting professionals, and also to amateur investors, who would be willing to do a little research into the company books.
For those who not lucky enough to attend Dr. Mulford's class, this book should do a great job.
Listens to all the reviewers.......2000-03-30
To all the people who are skeptical. This book is excellent. I got an email pointing me to this direction and I am glad I did spend the money. It is money well spend.
It teachs you the non recuring items in the financial statements, capitalized assets, capitalized interest, Lifo liquidation etc.
If you find my review satisfying, let me know if you had another good book to read. I know another book, let's trade some info.
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