Question

Ques. Carefully explain the downsides (weaknesses) of The Little Book of Valuation, as it related to valuing a company, picking stocks, and etc.

Answer 1

Firstly the book is not meant for beginners. The book is filled with technical terms and flows at a rapid pace. This makes it difficult for a novice to follow and comprehend all the concepts of the book.

Secondly it will not always be possible for investors and traders to internalize ’10 rules for the road’ as the concept is good in theory but might not always be applicable in certain situations that investors face.

Thirdly while the book mentions that value of a company is driven be few key drivers it does not provide a framework for investors as to how to determine and analyze key drivers for companies in different sectors. For example key drivers of a company in the insurance sector will be fundamentally different from the key drivers for a company that operates in the capital goods sector. An element of subjectivity is involved and each investor will have his/her own set of drivers.