Peter Stimes's analysis of the investment process has long been inspired by some of the best minds in the world of finance, including Martin Leibowitz, Merton Miller, and Eugene Fama, yet some of the ways in which he approaches this discipline are truly unique. In Equity Valuation, Risk, and Investment, Stimes shares his extensive expertise with you and reveals how practitioners - from portfolio managers to policy makers - can integrate and apply both the theory and quantitative analysis found in finance to the day-to-day decisions they must make with regard to important investment issues.
Written in a straightforward and accessible style, this reliable resource skillfully details a model - which is consistent with the fundamental principles of modern finance, but can operate in an environment where there are still unsettled questions - that provides invaluable insights into valuation, risk, and the construction of equity portfolios. This model, which is totally transparent, is also extraordinarily comprehensive.
Ch. 1 Introduction 1
Ch. 2 Inflation-Protected Bonds as a Valuation Template 8
Ch. 3 Valuing Uncertain, Perpetual Income Streams 22
Ch. 4 Valuing a Leveraged Equity Security 48
Ch. 5 Case Studies in Valuation during the Recent Decade 65
Ch. 6 Treatment of Mergers and Acquisitions 91
Ch. 7 A Fair Representation? Broad Sample Testing over a 10-Year Market Cycle 109
Ch. 8 Price Volatility and Underlying Causes 132
Ch. 9 Constructing Efficient Portfolios 156
Ch. 10 Selecting among Efficient Portfolios and Making Dynamic Rebalancing Adjustments 182
Ch. 11 How Did We Arrive Here Historically? Where Might We Go Prospectively? 207
App. A Mathematical Review of Growth Rates for Earnings, Dividends, and Book Value per Share 217
App. B Sustainable and Nonsustainable Inflation Rates 229
App. C Deriving the "Equity Duration" Formula 239
App. D Traditional Growth/Equity Valuation Formula 241
App. E Adjustments Required to the Traditional Growth/Equity Valuation Formula to Preserve Inflation Neutrality 244
App. F Brief Recapitulation of the Miller 1977 Capital Structure Irrelevance Theorem 247
App. G Time Series Charts of Unleveraged, Inflation-Adjusted Discount Rate Estimates 249
App. H Comparison of Volatility of Pretax and After-Tax income 255
App. I Relationship between Observed Price-to-Earnings ("P/E") Ratios and Nominal Interest Rates 257
App. J Additional Background on Mathematical Optimization Subject to Constraint Conditions 259
App. K Derivation of Asset Class Covariances 262
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