The Purpose and Theory Behind New Constructs &
Investing 101
1) Purpose and Theory Behind New Constructs
a) Introduction – Book 1
i) Brief History and background on our methodology
(1) Randy Myers, CFO Magazine, Metric Wars, October 1996
(2) Letter from Roberto Goizeta, Chairman and CEO of the Coca Cola Company,
November 27, 1996
(3) Robert L. Bartley, Wall Street Journal, Accounting Profit versus Economic
Profit
(4) G. Bennett Stewart, Wall Street Journal, Why Smart Managers Do Dumb
Things
ii) Why the world needs New Constructs
(1) Fukuyama, Trust: The Social Virtues and the Creation of Prosperity, On the
Human Situation at the End of History and Scale and Trust
(2) Hagstrom, Latticework: The New Investing, A Latticework of Mental Models
iii) How the world uses New Constructs
(1) Trainer, The Truth Behind the Numbers, October 2002
(2) Editorial Comment, The Journal of Psychology and Financial Markets, “The
Old Psychology Behind “New Metrics’” - 2000, Vol. 1, Nos. 3&4, 158–160
2) Investing 101
a) Capital Markets Theory – How Markets Work
i) Human nature and markets
(1) Treynor, Market Efficiency and the Bean Jar Experiment
(2) Stewart, Quest for Value, Market Myths
(3) Rappaport, Creating Shareholder Value, Shortcomings of Accounting
Numbers
ii) Financial Reality and function of markets
(1) Stern, Measuring Corporate Performance, Chapter II Free Cash Flow
(2) Stern, Measuring Corporate Performance, Chapter Evidence Supporting Free
Cash Flow
(3) Copeland, Koller, Murrin, Valuation, Cash is King
iii) Maximizing the utility of stock market prices
(1) Rappaport and Mauboussin, Expectations Investing, The Case for
Expectations Investing – Chap. 1
(2) Mauboussin, CAP- The Neglected Value Driver
(3) Mauboussin, The Invisible Lead Steer
b) Basic Corporate Finance (BCF)
i) How to get to the truth behind the accounting numbers
(1) Copeland, Koller, Murrin, Valuation Analyzing Historical Performance
(2) Stewart, Quest for Value, Market Reality
(3) Rappaport, Creating Shareholder Value, Shareholder Value Approach
ii) What the market really cares about
(1) Mauboussin, Plus Ca Change, Plus C’est Pareil
(2) Copeland, Koller, Murrin, Valuation , Estimating the Cost of Capital,
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The Purpose and Theory Behind New Constructs &
Investing 101
iii) Common Modeling Errors and Issues
(1) Copeland, Koller, Murrin, Valuation, Estimating Continuing Value
(2) Sirower, The Synergy Trap, Introduction: The Acquisition Game
(3) Mauboussin, Lets Make a Deal
c) Art of Valuation
i) Basics on Net Present Value and Time Value of $
(1) Brealey and Myers, Principles of Corporate Finance, Present Value and the
Opportunity Cost of Capital – chap. 2, pp. 11-28
(2) Brealey and Myers, Principles of Corporate Finance, How to Calculate
Present Values – Chap. 3, pp. 34-50
(3) Brealey and Myers, Principles of Corporate Finance, The Value of Common
Stocks, Chap. 4, pp. 57-79
ii) Why Valuation the right way matters
(1) Rappaport, Wall Street Journal, How To Avoid the P/E Trap -March 10, 2003,
- .pdf file
(2) Rappaport, Creating Shareholder Value, Stock Market Signals to
Management
(3) Rappaport and Mauboussin, Expectations Investing, How to Estimate PriceImplied Expectations, Chap. 5 pp. 69-84
(4) Mauboussin, Cash Flow.Com, pp. 1-21
(5) McKinsey: The strategic yardstick you can’t afford to ignore
d) Strategy – understanding and analyzing strategy
i) Industry Basics and terminology
(1) Porter, Competitive Strategy, The Structural Analysis of Industries
(2) Porter, Competitive Strategy, Structural Analysis Within Industries
(3) Porter, Competitive Strategy, Industry Evolution – Chap. 8
(4) Porter, Competitive Advantage, Differentiation – Chap. 4
ii) Modern Strategic Challenges
(1) Downes and Mui, Killer App, The Killer App
(2) Downes and Mui, Killer App, The New Economics
(3) Christensen, Innovator’s Dilemma, Introduction
(4) Christensen, Innovator’s Dilemma, Chapter 5
iii) Timeless Strategic Goals
(1) Reichheld, The Loyalty Effect, The Economics of Customer Loyalty – Chap. 2
– add notes from Chap. 1 re: acctg. And measuring loyalty
(2) Hagstrom, Latticework: The New Investing, Social Sciences, Ants, Avalanches
and Complex Systems - Chap. 4
(3) Mauboussin, What Have You Learned in the Past 2 Seconds
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