Free cash flow by definition is the amount of money available to the providers of capital to the firm. Firm value (the value of the firmâs total capital) can therefore be computed by discounting projected future free cash flows with the cost of total capital. While valuing only equity, instead, we could computefree cash flows to equity (i.e., free cash flows minus all net payments to the providers of capital other thanequity holders) and discount them at the cost of equity.
Hi All…I have query related to above FCF discussion, [ though its very basiscs but still ] . as understood from above discussion, can i say that –
FCF = Revenue (i.e sales for period) MINUS Expenditure (i.e Expenditure+Interest+Depreciation+Tax) ?
To me above equation sounds like “Net Profit” …that’s why i am confused. Or should i just deduct the
expenditure [ not Interest, Depreciation and Tax ] from Revenue to get the FCF figure?
would be great if i can have your expert view on this.
Thanks in Advance!!
When I started out, I read very useful articles/information pieces on ValuePickr itself! Please check the Basics section, when in doubt, or want to dig a little deeper into the financial jargons.
There is an excellent Stock Market glossary in that section. You can also read up on just what you want to know how or why is FCF useful, how can it be practically used, etc in this info on Free Cash Flows
Just wanted to thank on your suggestion to read Five rules of investing on your website. I may be following more than 50% of what was suggested in the book, but the problem was that I did not have a check list to follow. It happened that sometimes just by oversight I miss to check something important which I might have check in another company. I really loved first twelve chapters and especially chapter 12 on ten minutes test, as in the past on couple of occasions I rejected the stock idea after spending 3-4 days only to realize that this stock was not worth the detailed study.
Thanks a lot for writing in!
Exactly my comments. Before this book and my digesting it, seniors would always be able to find holes in my arguments - invariably.
But once I started using PAT Dorsey’s framework for analysing stocks sincerely, there was no looking back. Suddenly I was talking at the same level as seniors - holding a meaningful conversation with them - defending my ideas:)
It is a very very good book - for those who want to do it practically. As a friend had put it - it is a much underrated book - but really a goldmine, for the enthusiastic learner!!
This is my first post on valuepickr. Firstly you guys do a great job and thank you for that. Also would like to thank our friend Nitin Jagtap for introducing me to this group.
I’ve come across this book from Morningstar a couple of times in library but never picked it up. Will surely read it now that you have been recommending it.
Here are my favorite books apart from lynch,fisher and buffett books.
‘The Most Important Thing’ - By Howard Marks - This is a classic and I think you must read it if you have not.
"Rule #1’ This did to me what Pat dorseys book did to you.
Currenlty I am reading the 1929 crash by keneth galbrath.
Just wanted to add my learnings from the books mentioned above
"The most important thing " -For those of you familiar with oaktreecapital.com memos , the book mostly contains a collection of howard marks memos. Its hard for me to describe the book, Its like what dale carnegies book is for self development. I could say Howard marks is the dale carnegie of investing. He basically teaches what not to do in investing, his way of looking at markets , Risk , booms,busts and crowd psychology is amazing.
Rule #1 : This book taught me the 4M’s - Meaning (business meaning) , Management, Moat, & Margin of safety… How to arrive at a fair value of a business ? what price to pay etc. Very simple and basic for any investor.
Many Thanks for writing in on your favourite books, and what you retained from them.
Nice concise points made by you. Am ordering both:)
I just finished reading Motley Fools Investment Guide – “How the Fool Beats Wall street’s wise men and how you can too” by david and tom gardner.
Its good in parts and elementary in many parts. especially where they deal with mutual funds, margin funding etc.
They have mainly classified stocks into :
1). Rule Makers are the companies which dictate sectoral policies and I think these are what Peter Lynch refers to as stalwarts in his book. Throw in some growth in stalwarts and you have rule makers.
2). Rule Breakers are up and coming companies – fast growers in Lynch jargon-- catch here is that they stress a lot on brand strength etc. I think stocks like Page Inds, Hawkins etc would fall in this categories. Maybe people would talk about Mayur in the same vein in next 5 years.
They have a list of eight points for selecting stocks in the fast growers category and have elaborated on each point.
I think the book is a poor distant cousin of One Up on Wall Street.
Gimme Lynch anytime.
Just read “Benjamin Graham & Power of Growth Stocks” by Frederick Martin. I think that the book shall attain the status of investment classic in due course.
The book is about growth stocks, and valuation of growth stocks. It is based on a chapter in earlier edition of Intelligent Investor, written by Graham which was later deleted from later editions of the book. It is a rarity- a useful investing book. I recommend it to all members here.
Just finished reading “The Big Short” by Michael Lewis. Its a book which focuses on the intricacies of the subprime lending and all its associated instruments like credit default swaps, CDOs etc. It shows to what extent the well respected banks like Bear Sterns, Lehman, Morgan Stanley and even Goldman Sachs ( in which Buffett has a stake) go to swell their profits by selling instruments which they have very little knowledge of.
And on other side of the coin are a bunch of smart guys who were ready to bet against the subprime bonds and these institutions. These guys had a lot of patience and did a lot of homework before taking their positions but ultimately made big big bucks when the whole subprime crisis occured.
Essentially it is a very good book to show the power of conviction and its rewards.
Is Amalgamated Beans listed by any chance? I tried looking for it, but could not find any info.
3.One Street Link: http://www.flipkart.com/books/0743200403?pid=l5w3faqv6b&_l=CJHVEqJO3veuHytbACc9dw--&_r=OocmNXVmXBbn7JZBCt2ruQ--&ref=2ac8d026-c41e-43b3-9004-668abb304e36 , Peter Lynch ](http://www.flipkart.com/books/0743200403?pid=l5w3faqv6b&_l=CJHVEqJO3veuHytbACc9dw--&_r=OocmNXVmXBbn7JZBCt2ruQ--&ref=2ac8d026-c41e-43b3-9004-668abb304e36)** principles.Bought
Pat Dorsey’s talk at Google on wide moats. Very insightful for anyone interested in moats and value investing
- The Intelligent Investor by Ben Graham
Dont think I need to add anything about this brilliant book. If one is reading a set of books, I’d say this should be the first book one has got to read before he makes any investments into the market.
- Margin of Safety by Seth Klarman
The fund manager who is unafraid to hold cash; Klarman is often unconventional, but effective nevertheless. He is possibly the most Graham-like amongst all modern investors and fund managers
- The Little Book that still beats the market by Joel Greenblatt
No frills, an absolutely simple and truly effective way to approach investing and the markets. One simple formula - “High quality + low price”
- Common stocks & uncommon profits by Phil Fisher
Buffet had once said, “My investment approach is 85% Graham and 15% Fisher”. I reckon its exactly the opposite now. If there was one book which ValuePickr forum closely represented, it has to be this. An absolute classic and the baap of growth and investigative investing
- Mckinsey on Valuations
This is the book which helped me get a better grip on valuation concepts, fundae around it etc. Its cumbersome, but probably worth it.
Recently read the following books:
King Icahn: The Biography of a Renegade Capitalist By Mark Stevens
This is story of Carl Icahn an activist investor. Apart from his attack tactics the book also tells us his stock selection criteria - He looks for deep value stocks where he can make a change. His track record is better than Warren Buffet if you take away insurance leverage benefit Buffet has.
Deep Value Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations By Tobias E. Carlisle
This is one excellent book written by quant Hedge fund manager who happens to be Deep Value Investor n the mold of Ben Graham. Tobias, with the help of research and elaborate data, makes a convincing case for Deep Value investing. the book especially extols the virtue of Net-Net and EV/ebit valuation methods. i I have read 100s of investing books and still the book was eye opener for me in many ways.
Keynes way to wealth Timeless Investment Lessons from the Great Economist By John Wasik
The great economist Keynes was also great investor. He started his hedge fund in early 20s. He lost and made fortune in the stock market crash and later. By the time he died he was fabulously rich man. And he did all that by spending couple of hours in the morning in his bed researching the ideas and taking decisions. The book also describes how he used to select his stocks. The book tells us that he made his real money in late 30s and 40s when he switched to value style investing…buying promising companies for less price and holding on to them.
Where are customer’s Yachts By Fred Schwed
Delightful and humorous take on the wall street of 1930s and the how wall-streeters used to swindle the money from the public… The book is written in late 1930s. But it reads very fresh. The reason is not much has been changed either on Wall street or Dalal street.
Inside Investor’s Brain The Power of Mind Over Money By Richard L. Peterson
This is fantastic book on neuro-economics and behavioral finance. The author is Doctor, neurologist, practicing psychiatrist on top of this he was a professional trader. the book is very content rich and will enrich the readers on how we take the decisions, what goes on, our biases. But most importantly he also gives remedies, including mention of some medicines!! The good doctor reveals all. As this is written by a doctor the book talks a lot about brain internals, hormones etc. It also extol the virtue of deep breathing, meditation, Omega 3 etc for emotion control and overall brain health.
Free Capital By Guy Thomas
Read this book again for inspiratin. It tells the stories of 12 private investors in UK who left their jobs or forced to get out of it and devoted their time to stock investing. All are multimillionaire. They have different styles. One is even day trader. If you ignore that fellow and chapter the rest of the stories are very inspiring and useful to ValuePickr members. These 12 investors have varied background, education, investing style, holding periods. From college dropouts to PHds to even one Member of British parliament you will meet all sorts of people. Their success and records are astonishing indeed. Most work from home and live very quiet and simple life. They do their own research. Few talk to management and few never talk to management. Many are die hard contrarian value investors but one is also day trader. Few invest only in UK and few anywhere in Europe.
Very inspiring book. If you want to know about non American (European) investing success stories then read this book.
Has anybody read / does anybody have following Ebooks?
- “Where Are the Customers’ Yachts? or A Good Hard Look at Wall Street” by Fred Schwed
- “A Zebra in Lion Country” by Ralph Wanger
- “The Money Masters” by John Train
- “Benjamin Graham and the Power of Growth Stocks” by Frederick K. Martin
- “It’s Earnings That Count” by Hewitt Heiserman
Thanks & Regards,
Hope I am not too late to join the bandwagon, but nevertheless here’s my list
1.The Intelligent Investor -Benjamin Graham a Timeless classic, teaching investment concepts in a lucid manner. Have always resorted to reading this book again and again for the past 7 years now! The holy book for investing for me period.
2.The Richest Man in Babylon by George S. Clason An offbeat book which disperses financial wisdom through parables. (quote from the book:If you desire to help thy friend, do so in a way that will not bring thy friend’s burdens upon thyself.)
*3. Common Stocks and Uncommon Profits- Phillip Fisher an insight about common stocks and how to reap uncommon profits from them. One of the best books even for people with not much idea about stocks.
4.Investment Valuation: Tools and Techniques for Determining the Value of Any Asset Paperback – by Aswath Damodaran Good book which gives insights into how to chose the right model for any given asset valuation scenario.
5.Good to Great: Why Some Companies Make the Leap… and Others Don’t by James Collins.
(quote from the book…
Picture an egg. Day after day, it sits there. No one pays attention to it. No one notices it. Certainly no one takes a picture of it or puts it on the cover of a celebrity-focused business magazine. Then one day, the shell cracks and out jumps a chicken.
All of a sudden, the major magazines and newspapers jump on the story: “Stunning Turnaround at Egg!” and “The Chick Who Led the Breakthrough at Egg!” From the outside, the story always reads like an overnight sensation—as if the egg had suddenly and radically altered itself into a chicken.
Now picture the egg from the chicken’s point of view.
While the outside world was ignoring this seemingly dormant egg, the chicken within was evolving, growing, developing—changing. From the chicken’s point of view, the moment of breakthrough, of cracking the egg, was simply one more step in a long chain of steps that had led to that moment. Granted, it was a big step—but it was hardly the radical transformation that it looked like from the outside.
It’s a silly analogy, but then our conventional way of looking at change is no less silly. Everyone looks for the “miracle moment” when “change happens.” But ask the good-to-great executives when change happened. They cannot pinpoint a single key event that exemplified their successful transition.)
- Margin of Safety
- Valuation - Mckinsey / Damodaran
- Financial Shenanigans
- Reminiscences of a Stock Operator
- Uncommon Profits
Only in the religion of investing, one can say the Bible (Intelligent Investor) is not the most relevant anymore. Ben Graham’s books are still good reads.
Most of us know sources of learning as Warren Buffet letters, Pat Dorsey books, Peter Lynch books, Valuepickr, Prof. Bakshi, Jana’s blog, safalniveshak.
I have been watching videos of Rajeev Thakkar (CIO at PPFAS). For me it has been one of the best source of learning business, value investing and about economic theories. He also gives lot of insights in terms of indian markets and how things are in indian context. The simplicity with which he explains and the clarity of thoughts is joy to listen.
You can find all his videos at
You can almost watch all his videos. For me it was a treat to listen him.
One may find following 35 Video Lesson Series based on the investing approach of Warren Buffett also to be valuable: