Valuing Wall Street: Protecting Wall Street Profits with Nobel Laureate James Tobin's Q Ratio

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9780071354615: Valuing Wall Street: Protecting Wall Street Profits with Nobel Laureate James Tobin's Q Ratio

James Tobin's celebrated q ratio has predicted every major market top in the last century. Valuing Wall Street is the first comprehensive guide to apply this ratio to today's stock market -- and find Wall Street dangerously overvalued! It shows the reader how to calculate q, use it to predict when the market will plunge, and take protective steps before it's too late.

More than just a guide to q, however, Valuing Wall Street is a complete guidebook for protecting profits in turbulent markets. It provides timely information for all investors with too much of their savings tied up in equities, discussing:
-- How to decide which stocks to buy -- and when to stay on the sidelines
-- Which investments rate highest as solid alternatives to stocks
-- Best strategies for hanging on to gains during volatile times

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Review:

There's a joke going around the investment community: "You know the definition of a long-term investment? It's a short-term investment gone bad." In this absolutely delightful, easy-to-read book, authors Andrew Smithers and Stephen Wright argue downright investment heresy: maybe long-term, buy-and-hold strategy is not the most winning strategy available to investors today. And while they do not argue that in-and-out day trading is the answer, their suggestion is for investors to use "Tobin's q" to determine when to be in or out of the market. Tobin's q was devised by James Tobin in 1969, for which he won the Nobel Prize in economics. The "q" is a measure of stock market value to the actual value of the underlying assets of the firm. In times of high q, investors should sit out of the market, whereas in times of low q, investors should wade back in.

According to the authors, "the benefits of long-term equity investment have been dangerously oversold by harping on long-term returns, while failing to point out that this long-term is simply too long for most investors". Indeed, their aim is not to tell you how to make money, but instead to show you how to avoid losing it. They claim that today's market q value is so dangerously high that preserving wealth--and not trying to find the next hot shot Internet penny share--is paramount.

Valuing Wall Street is a thought-provoking work which compares the use of price/earnings ratios, dividend growth models and dividend yield models for their predictive power in valuing markets. The authors, who have one foot in the real world (Smithers run a market consultancy firm) and one in the academic camp (Wright is a lecturer at Cambridge), dismiss stockbrokers' "Stocks are wonderful" mantra in an amusing fashion. Any serious investor, and especially those nearing retirement, would do well to read this book. --Bruce McWilliams

Review:

Analysts also believe the debate over stock market valuation will intensify in the weeks ahead thanks to the recent publication of two highly respected books that both forecast a coming bear market.

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Andrew Smithers; Stephen Wright
Published by McGraw-Hill Companies (2000)
ISBN 10: 0071354611 ISBN 13: 9780071354615
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Smithers, Andrew, Wright, Stephen
Published by McGraw-Hill Companies (2000)
ISBN 10: 0071354611 ISBN 13: 9780071354615
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