Bests & Worsts Reviews from Amazon

To be honest, I really don’t understand these 5* reviews for this book. In fact, this was one of the more severe letdowns for me. I was expecting a check list full of both quantitative and qualitative measures regarding a business, but instead, the quantitative part is kept to a minimum, with the subjectivity of qualitative measures dominating the book. Now, just because qualitative descriptions are what the majority of the book is about doesn’t necessarily mean it’s a poor book; it’s the type of qualitative measures the author presents that really hampers it. Due to this, it’s unclear whether the book is written for the individual investor who wants to simply put more time into his investment evaluation, or for the professional analyst working at a bulge bracket firm. As an example of the author not knowing his audience, he mentions in order to gain a better insight into 99 Cent Stores, he visited over *100* of their stores! Yes, you read that right, over one hundred stores. Unless the author’s firm was contemplating buying the entire business, there is ZERO insight a person would gain after visiting the 20th store versus the 110th store. Now, if you’re a professional analyst and your boss is paying you to visit all these stores, hey, why not? But as an individual investor, the notion that you’d need to even visit a fraction of this amount is absurd. Visiting as many locations as you REASONABLY can is a great method right out of the Peter Lynch school of investing, which I wholeheartedly endorse, but really, over a hundred locations? Come on. Another instance of this lack of audience awareness is Appendix B, titled “How to Interview the Management Team.” Unless your last name ends with Buffett, Soros, or Gross, the average investor will never have an opportunity to ask management questions. Now, if this is for the professional analyst, this is fine, but for everyone else, it’s pointless. Beyond not knowing his audience, the author spends 3 full chapters on qualitative measures to evaluate the management team, or 100 pages out of 320 total (approximately a THIRD of the entire book). I believe having an understanding of who’s running the business is a fine use of time, but the author spends several sections on themes that should have, for the most part, NO BEARING AT ALL on your decision to buy or sell a stock. Examples of these sections include “Is the Manager a Lion or Hyena?” “Is the Business Managed in a centralized or decentralized way?” “Does Management Value its employees?” “Does Management Treat Employees with Respect When They Lay Them Off?” (I’m not joking) and “Does the Business Have Identifiable, Shared Values?” Aside from these questions either being simple buzzwords ("shared values") or largely irrelevant to an investor/analyst, HOW is someone supposed to know if a business treats employees with respect when laying them off? Or whether employees all have the same values? (The author suggests going up to random employees and asking if they know what their business' "shared values" are. Again I'm serious here) I’ve never heard of a fired employee saying “Yeah I was laid off, but they were very gentle with how it was done, I appreciated the experience.” These three chapters read more like a human resources manual and less like an investment piece. Now, there are some positive points to this book. The authors spends time on discussing operating leverage, which very few investment works seem to include. He also discusses “quality of earnings” (albeit in not much detail beyond “operating cash flow should exceed net income” or “watch for excessive restructuring charges”), as well as ROIC (but only mentions ROE once, so…) and how to gauge management stock compensation schemes. The parts on understanding the business from the perspective of the customer is also interesting, as it is the customers that ultimately decide how successful a business is. The industry analysis is worthwhile in that he discusses how to use other financial metrics that can’t be ascertained from the standard financial statements, such as revenue per hotel room or increase in same-store sales. Perhaps the biggest surprise was his in depth discussion of working capital management, using the cash conversion cycle. This part of the book is definitely the high light. Amazingly, considering the book is written for the long term investor, there isn’t a **SINGLE** chapter/section/whatever on valuation! A third of the book on discovering the personality traits of the CEO (Is he a lion or hyena?) but NOT A SINGLE PAGE ON VALUATION (“buy cheap” is about as elementary as it gets). Unless you’re looking to do a character study on your favorite CFO, take a pass on this book.