Money machine

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I got a tip for ya! Gary Smith’s  Money Machine is a rare ­pleasure a book about investing that makes you laugh out loud Smith uses a series of telling stories about investors, students, friends, and so-called experts to drive home his point that investing is about creating value, year after year, and not about yelling “Buy! Sell!” all day in response to the latest blips on the ticker board.” —Charles Euchner, Center for an Urban Future “A modest investment of time with Smith’s book will yield outsized returns to those looking to build personal wealth in a reliable and steady manner.” —Bryan White, Founder, Sahsen Ventures “In Money Machine, Gary Smith does what he does best: he provides a clear, readable, accessible overview on the fundamentals of investing, its opportunities, and the pitfalls.” —Sebastian Thomas, CFA, MBA, Portfolio Manager, Head of US Technology Research, Allianz Global Investors “Shocking—An economist who can be clear and funny while actually conveying great insights into rational and irrational approaches to stock market valuation! This book will be a great gift to give to my friends and clients who definitely need to read it.” —Davis D Thompson, Corporate Attorney “Both engaging and insightful, Money Machine appeals to anyone who wants to understand the forces that drive the stock market Using simple and entertaining examples, Smith provides a practical guide to making smart investments.” —Anita Arora, MD, MBA, RWJF Clinical Scholar at Yale University “In Money Machine, Smith dispels many common myths of technical data, data mining, and market bubbles through entertaining and engaging examples.  A thoroughly enjoyable read. “ —Andrew Voth, CPA/CFF, CVA, CIRA/CDBV, CFE, Senior Director, Alvarez & Marsal “Over his more than 40 years of observing markets and teaching at some of America’s top academic institutions, Dr Smith has accumulated a wealth of insights that he shares with you in Money Machine If you want to increase your investing IQ, I’d highly recommend this book.” —Jeffrey H Ellis, CFA, MBA, Managing Member, L Street Capital Management, LLC $ MONEY MACHINE The Surprisingly Simple Power of Value Investing GARY SMITH AMERICAN MANAGEMENT ASSOCIATION New York • Atlanta • Brussels • Chicago • Mexico City • San Francisco Shanghai • Tokyo • Toronto • Washington, D.C To James Tobin For those who knew him, no explanation is necessary For those who didn’t, no explanation could be sufficient CONTENTS xi xiii Foreword Introduction PART I: Value Investing Seeing Through the Hype Speculation Versus Investing Semi-Efficient Markets Torturing Data Baubles and Bubbles Intrinsic Value Investment Benchmarks The Conservation of Value We’re Only Human PART II: Value 10 31 45 61 79 111 124 Investing Applied 10 The Right Attitude 11 KISS 12 Timing the Market 13 Picking Stocks 14 Closed-End Funds 15 Special Opportunities 16 Investing in Your Home Appendix to Chapter 16 Afterword: Summing It Up References Index About the Author Best-Sellers from Amacom 147 158 169 176 200 214 241 259 About Amacom 306 ix 263 271 293 303 304 FOREWORD M ost people who buy and sell stocks have heard the story of the two finance professors who see a shiny $100 bill on the sidewalk One professor is tempted, but the other cautions that if it were real, someone would have picked it up already The lesson is supposed to be that, in the stock market, anything that looks like free money is an illusion Some people actually believe this—I not Money Machine: The Surprisingly Simple Power of Value Investing makes clear why others should not believe it either Professor Smith reminds us of the South Sea Bubble, when even Isaac Newton bought stock in companies that lacked a compelling story but touted a whimsical expectation of reselling the stock at a higher price to an even bigger fool More recently, investors bought into the same ill-founded illusions with Beanie Babies, gold, and dot-coms At the other end of the spectrum—from greed to fear—the 2002 and 2009 stock market crashes left suitcases full of $100 bills on the sidewalks So, how does an investor distinguish a bubble from a bargain? Both Professor Smith and I believe the answer is through value investing: thinking about the intrinsic value of a stock and not about the stock’s old price or a guess of its future price Professor Smith clearly explains the two keys to being a successful value investor First, no one is able to predict how prices will wiggle and jiggle as fear and greed batter the markets But you can think of stocks as money machines Think of the cash you will receive if you own the machine (and leave yourself a margin of error) Second, not let lust or panic sway your investment decisions Many investors had a hard time sitting on the sidelines when Yahoo, AOL, and other internet companies soared during the dotxi xii  Foreword com boom in the late 1990s, but value investors did exactly that, they sat Many investors could not think about buying stocks when prices fell more than 40 percent between 2000 and 2002 and, again, between 2007 and 2009 Value investors did exactly that; they bought because those were buying opportunities of a lifetime Professor Smith also explains how you could find bargains even in ordinary times—for example, in companies that are out of fashion and in closed-end funds selling at a discount Some may think it counterintuitive that companies with analysts who are pessimistic usually better than companies with analysts who are optimistic, or that stocks that are booted out of the Dow usually better than the stocks that replace them but not a value investor Let others make decisions driven by fear and greed, and thank them silently for the opportunities they give you—for the $100 bills they leave on the sidewalk If you want to be a great investor, look for these $100 bills and not be afraid to pick them up off the ground! This is another great, well-thought-out book by Professor Smith that I enjoyed reading, and you will too M I C HAEL LARSON Chief Investment Officer of BMGI, the Investment Office of Bill Gates 294  INDEX book value, of company, 102 Boston, condominium prices, 125–126 breakeven mentality, 130–131 Brevoort, Henry Lefferts, 231 Brevoort Savings Bank, 231–232 Brin, Sergey, 188 brokers discount, 160–161 fees, 163 national mortgage, 225 Brooklyn Savings Bank, 232 bubbles, 52–54, 169, 266–267 anecdotal signs, 169–170 dot-com, 55–58 South Sea, 54–55 Buffett, Warren, 9, 27–30, 113, 237, 268 advantages, 176 on fear and greed, 209 on gold, 77 on holding stock, and index funds, 156 on institutional investors, 152 on selecting stocks, 71 on stock market, 252 on stock value, 65 burn rate, 170 business cycle, adjusting growth company’s earnings for, 184–185 business models, questioning, 191 Business Week, 111 buy-and-hold strategy, 165 buying on margin, 161 buying opportunities, 90–91 capital, accumulated losses of Crossland Savings, 233 capital gains tax, 128, 163–164 capital losses, harvesting, 165–166 capital shareholders, 211 capitalization stocks, 108–109 cash, 249–251 Castle Convertible Fund, 216 causation, and correlation, 37 channel, 32 Charles Schwab, 160 chart of stock prices, 32 checking accounts, interest on, 231 Chesterton, G.K., 10 Chevron, 139 churning, 162–163 Civil War, bank currency during, 231 Class B shares, 113 closed-end funds, 200–213 discount, 202–203 expenses, 203 and portfolio liquidation, 204–205 Coase, Ronald, 31, 190 Cohn, Richard, 94–95 cold calls, 162 collateralized debt obligations (CDOs), 225–226 collectibles, 45–49 baseball cards, 45–46 beanie babies, 48–49, 267 postage-stamp plate blocks, 45–46 commercial real estate, 232 common sense, xvi companies book value of, 102 starting vs running, 170 too big to fail, 227–228 compounding, power of, 69 comps, 243 computer center in 1969/71, 177–178 computerized trading systems, 42–44 computers, xv–xvi vs human decisions, 142–143 confidence, 26–27 conservation-of-value principle, 114 constant-growth model, 68–69 consumer price index, 120 Consumers Digest, Get Rich Investment Guide, 13, 116 contrarian strategy, 29–30, 218–222, 268 convergence trades, 40–41 correlation, and causation, 37 INDEX  costs vs market value, 103 sunk, 129–130 Crane, Burton, 36, 79, 84 credit default swaps (CDS), 226 Crossland Savings, 232–234 accumulated capital losses of, 233 tax fraud, 233 crowds, delusion of, 24–27 currency, 229 cyclically adjusted earnings, 91–93 cyclically adjusted earnings yield, for Amazon, 198 cyclically adjusted P/E ratio (CAPE), 92 damage, deliberately causing, 254 data mining trap, 34–35 day-trading stocks, xviii, 163 Debreu, Gérard, xv decisionmaking, computers vs humans, 142–143 default insurance, for pension fund, 227 depreciation expenses, 122 Digital Science, 188 disagreement, and uncertainty, 13–14 discount, for closed-end funds, 202– 203 discount brokers, 160–161 Disney, 70–71, 96, 109 dividend yield, 96 dividend-price ratio, 81–83 dividends, 6, 11, 61–62, 116–117 Amazon and, 197 inflation-adjusted, 122–123 present value, 65–67 present value of nonexistent, 73 reinvestment plans, 117 stock, 114–116 taxes on, 117 Dodd, David, Security Analysis, 28 Dogs of the Dow strategy, 38, 106 dot-com bubble, 55–58, 60, 88–89 295 dot-com stocks, 3–4, 25 Dow Jones Industrial Average, 43 36K prediction, August, 2015 to August, 2016, 62–63 deletions, 137–139, 270 Glassman-Hassett prediction, 58 in mid-1980s, 34 predicted stock growth and P/E ratios, 85 Dreman, David, 97 The New Contrarian Investment, 17 dual-purpose funds, 211–213 dumb terminals, 178 early redemption fees, 152 earnings, short-term fluctuations, 85, 91 earnings forecasts optimistic vs pessimistic, 218 shrunken, vs regression to the mean, 135–137 earnings per share, 269 inflation-adjusted, for Apple, 182– 183 S&P 500 inflation-adjusted, 183 stock dividends and, 115–116 earnings-price ratio, 79–81 East Brooklyn Savings Bank, 232 economic recession, 236 economic value added (EVA), 73–75 economics trading cards, 47–48 economist definition of, xv gifts of master, xiv Ecosphere Technologies (ESPH), 21–23 efficient market hypothesis, 11, 13, 264 emotions, 20–25 energy sector, 219 error, in estimates, 25 eTrade, 161 ex-dividend date, 116 296  INDEX experts, technical analysts as, 33 extrapolation, dangers of, 99–100 Fama, Eugene, 25–26, 53, 109 fear, xvi–xviii Feather, William, 214 federal deposit insurance, 221 Federal Deposit Insurance Corporation (FDIC), 233 Federal Metropolitan Savings Bank, 232 Federal Reserve, 4, 227–228 and interest rates, 12–13 Federal Reserve Bank of New York, 237 Federated Strategic Value Dividend Fund, 119 FedEx, 109 fees, 152–154, 163 Fidelity, 161 Filo, David, 187 Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), 221–222 financial markets, change in, xiv First Financial Fund (FF), 207–210 cumulative return on, 210 First Opportunity Fund, 209 Fisher, Philip, xiii, 109 Fishers, Indiana home dividend for landlord, 256– 258 home dividend in first year, 259– 261 home investment in, 247–249 flash crash (May 6, 2010), 43–44 Foolish Four Strategy, 38–39 Forbes, 98 forecasts of corporate earnings growth rates, 136 optimistic vs pessimistic, 218 Fortune, 109–110, 246 Fuld, Richard, 226 “full load” fund, 152 Fulton Savings Bank (Brooklyn), 232 Furr’s/Bishop’s Inc., 215 futures market, safeguards, 44 gains, deferring, 163–165 Galbraith, John Kenneth, 221 gambling addict, xviii Gardner, David, The Motley Fool Investment Guide, 37 Gardner, Tom, The Motley Fool Investment Guide, 37 Gemini Fund, 212–213 General Electric, 109 The General Theory of Employment, ­Interest, and Money (Keynes), 158 Get Rich Investment Guide (Consumers Digest), 13, 116 Getty, J Paul, 29 Glassman, James, Glassman-Hassett prediction on Dow Jones, 58 gold, daily price, 76–77 Goldman Sachs Trading Corporation, 202 gold-silver ratio (GSR), 40–41, 191 Goodman, George, Goodyear Tire, 139 Google, 187–195 average earnings per share, 191– 192 Google Chrome, 188 Goolsbee, Austan, 28 Graham, Benjamin, 61, 62, 65, 71, 94, 99, 106 Security Analysis, 28 Granville, Joseph, How to Win at Bingo, 33–34 Great Depression, 131–132, 236 Great Recession, 90, 174 Greater Fool Theory, 6, 55, 97 greed, xvi–xviii, 52 Greenwich Savings Bank, 232 growth, 269 and Amazon’s strategy, 197 INDEX illusion of, 100–102 long-term, xvii value of, 69–72, 100 growth stocks, 96, 97 disappointment from, 98 price-earnings ratio, 87 value of, 99 Harvard Business Review, 115 Harvard Joint Center for Housing Studies, 245 Hassett, Kevin, hedge fund, 227 Hewlett-Packard, 43 high-yield bonds, 221 hits for web page, 57, 170 holiday sales, and stock value, 12 Home Depot, 124, 138, 139 home dividend, 245–247, 255–256 after-tax, 248 in Fishers, IN, first year, 259–261 in Fishers, IN, for landlord, 256– 258 for landlord, 256–258 present value, 249 home investment, 241–258 adverse selection, 253 in Fishers, IN, 247–249 income from, 242 intrinsic value, 242–243 long view, 251–252 moral hazard, 254–255 vs renting, 247, 251–252 home prices, 125 decline, 226 increase, 250–251 hot tips, 21–23, 233, 263, 264 Hotelling, Harold, 132, 134 Hound of the Baskervilles Effect study, 190 How to Win at Bingo (Granville), 33–34 Hulbert Financial Digest, 34 human behavior, 147 Hume & Associates, The Superinvestor Files, 40 IBM, 96, 97 market opinion of, 13 income shareholders, 211 index funds, 155–157 indexing, benefits, 157 individual retirement accounts (IRAs), precious-metal, 75–78 infinite-horizon model, 181 infinite monkey theorem, 28 inflation accounting for, 122–123 rate of, 120 stocks as hedge, 119–121 information, possessing vs processing, 27, 265–266 inside information, 12 insider trading, 19–20 insurance default, for pension fund, 227 deliberate damage to collect, 254 federal deposit, 221 in Fishers, IN, 260 Intel, 139 interest rates, 72–73 anchoring and, 126–129 Federal Reserve and, 12–13 inflation and, 94 and P/E, 92 internet, dot-com bubble, 55–58 intrinsic value and gold, 77 of stock, 6, 61–78, 85, 267–268 of stock, equation, 68–69 investment benchmarks, 79–110 dividend-price ratio, 81–83 earnings-price ratio, 79–81 price-book ratio, 107 price-earnings ratio, 83–88, 107 Shiller’s cyclically adjusted earnings, 91–93 298  INDEX investments as money machines, 263 price-earnings ratios for decisions, 86–88 qualities to consider, 159–160 vs speculation, 6–9 too good to be true, 51–52 investors, massively confused, 215– 218 iPhones, 179 iShares Core S&P Total U.S Stock Market ETF, 155 Jackson, Andrew, 230 Japan Fund, 204–206 Jensen, Michael C., 24 John Burr Williams (JBW) equation, 68–69, 83, 171–172, 268 for Apple, 179–180 JPMorgan Chase, 150 junk bonds, 221 Kahneman, Daniel, 130 keep it simple, stupid (KISS), 158 Kelley’s equation, 136 Keynes, John Maynard, xiv, 25, 29, 124, 236, 237 The General Theory of Employment, Interest, and Money, 158 keypunch machines, 177 Kidder Peabody, 13 Kmart, Sears purchase of, 138 Korea Fund, 206 landlords long-distance, 255–256 taxes, 261–262 Law of the Conversation of Investment Value, 111, 269 Lehman Brothers, 224–229 stock price collapse, 228 Lever Brothers, 239 Lipper, Michael, 97 Lipper Analytical Services, 153 liquidation of stock portfolio, closedend funds and, 204–205 load charges, 152–154 long-distance landlords, 255–256 Long-Term Capital Management, 143, 236–237 long-term growth, xvii Los Angeles Times, 162 losses, making peace with, 130 “low loads,” 152 low-priced stocks, luck, vs skill, 17–19 Lynch, Peter, 178, 245 Madoff, Bernie, 52 Magee, John, 32 maintenance expenses in Fishers, IN, 261 for landlord, 253, 257–258 Malkiel, Burton, 156 management fees, for mutual funds, 151–152 Margarine Unie, 239 margin, buying on, 161 market price, of closed-end fund, 201 market timing, 14–15 market value, vs costs, 103 markets, barrier to entry, 196 Massmutual Corporate Investors, 216 master investor, xiv Materia, Anthony, 20 mathematical models, xv mathematicians, xv McDonald’s, 96, 97 MCI Communications, 216 mediocrity, business convergence to, 132 mergers, 100–102 Merrill Edge, 161 Merrill Lynch, 228 Metropolitan Savings Bank, 232 Michelangelo, 111 Microsoft, 139 Milner, James, 55 INDEX  Modigliani, Franco, 94–95 Money, 247 money, time value of, 65 Moore’s Law, moral hazard, 254–255 Morgan, J.P., 15 Morgan Stanley Asia Pacific Fund, 216 Morningstar, 154 mortgage brokers, national, 225 mortgage payment, 246 in Fishers, IN, 259 and taxes, 262 mortgage rates, 207 mortgage-backed security, 224 The Motley Fool Investment Guide (Gardner and Gardner), 37 mutual funds, 151–152 open-end vs closed-end, 200–202 vs stock market, 154 Naples, Florida, housing market, 244–245 Napoleon, 200 NASDAQ, 4, 57 national mortgage brokers, 225 net asset value (NAV), for mutual funds, 200–201 NetJ.com, 57 The New Contrarian Investment ­(Dreman), 17 New Economy, 56 New Statesman, xv New York Times, 14, 37, 104 Newton, Isaac, 55 Niantic, 217 Nifty 50, 96–98 Nike, 63–64, 109 NINJA loans, 225 Nintendo, 217–218 Nobel Prize in Economics (2013), 25 no-loads, 152 number crunchers, xv 299 Odell, Claude, 205 O’Higgins, Michael B., 106 open-end funds, vs closed-end, 200– 202 optimism, 270 options on stock, 52 Oracle, 70 O’Reilly Media, 188 overestimating, 26 Page, Larry, 188 PageRank, 188 patterns, 266 Paulson, Henry, 228 pension fund, default insurance for, 227 perfection, 158 performance, tracking, 166–168 personal computer revolution, 178 personal rate of interest, 67 Pickens, T Boone III, 205 Plato, 147 Polaroid, 96, 98 Polémon GO smartphone game, 217 Ponzi, Charles, 50 Ponzi schemes, 50–51, 266 postage-stamp plate blocks, 45–46 collectibles, 45–46 precious-metal IRAs, 75–78 predicted earnings, pessimistic vs optimistic, 135 present value of future cash, 66 of home dividend, 249 for intrinsic value estimate of stock, price appreciation, 245 price-book ratio, 107 price-earnings ratio, 83–88, 107 for Amazon, 198–199 Prime Rate, 13 private banks, 230 Procter & Gamble, 43, 44 professionals, performance of, 17 300  INDEX profits, 170 inflation and, 122 from mortgages, 225 property tax, in Fishers, Indiana, 260 Prudential-Bache, 207 public information, 215 pyramid deal, 51 Qualcomm, 169–170 rarity, and value, 47 Rashes, Michael S., 215–216 real estate, 129 commercial, 232 see also home investment record date, 116 regression to the mean, 131–132 statistical fallacy, 132–134 in stock market, 134–135 rent savings, 250 rental properties, 252–253 in Fishers, IN, 259 renting, vs owning, 247, 251–252 Republic Bank of New York, 233 residential housing, as investment, 243–245 retained earnings, 80–81 retirement, self-directed plan, 167 risk, 131 stocks vs Treasury bonds, 67 robbery, insider trading as, 20 Rogers, Will, 243 Royal Dutch Petroleum Company, 234–235 Royal Dutch/Shell, 234–239 Saint-Exupéry, Antoine de, 158 savings and loan associations (S&Ls), 207 crisis in 1980s, 221 deregulation, 208 SBC, 139 scalable technology, 196 Schlumberger, 96 Science Foo Camp, 188–197 scuttlebutt, 109–110 Sears, 124 Kmart purchase, 138 Second Bank of the United States, 229–230 Secrist, Horace, 131 study weakness, 134 securities, performance predictability, 86 Securities and Exchange Act, 19 Securities and Exchange Commission (SEC), 19–20, 153 Securities Investor Protection Corporation (SIPC), 161 Security Analysis (Graham and Dodd), 28 Seeking Alpha, 14 semi-efficient markets, 10–30 shareholder return, 16 Shell Transport and Trading Company, 234–235 Shiller, Robert, 25–26, 91 Online Data website, 171 Shiller’s cyclically adjusted earnings yield, 91–95, 172–173, 268 for Apple, 182–185 for Google, 191–193 model, 169 short sales, 161–162 skill, vs luck, 17–19 small-cap firms, 108 Sotheby’s, 43 South Sea bubble, 54–55 Southwest Airlines, 109, 140 speculation, 45, 263, 265 on bubbles and panics, 52–54 vs investing, 6–9 “split-strike conversion” strategy, 52 Spring Valley Savings & Loan Association, 232 Standard & Poor’s 500, 138 annual rate of return, 1900 to 2010, 87–88 INDEX  annual rate of return, 1980s, 87 annual returns, 148–149 average annual returns from stocks, 147–151 dividend yield, vs Treasury rate, 82 earnings yield vs long-term Treasury rate, 80, 81 inflation-adjusted, 121 price-earnings ratio for, 84 Standard Deviations: Flawed Assumptions, Tortured Data, and Other Ways to Lie with Statistics, 189 Standard Oil, 234 Starbucks, 109 state-chartered banks, 231 stock dividends, 114–116 stock market 1970s and 1980s, 95 crash in 1973-1974, 73 crash in 2008, 90–91 economic events and, 72–73 growth trap, 96 mistakes, 214 mood of, 32 vs mutual funds, 154 nifty 50, 96–98 patterns, 35–36 potential mistake, 94–95 pricing by, 238 stock prices, 4–5 changes, 14, 264–265 of dot-com stocks, 57 and predicting future, 23 stock splits, 111–113 stocks annual standard deviation, 148– 149 vs bonds, 59 capitalization, 108–109 as inflation hedge, 119–121 intrinsic value, 61–78, 85, 267–268 liquidation of portfolio, closedend funds and, 204–205 301 repurchases and sales, 118–119 risk vs Treasury bonds, 67 selecting, 15–16, 176–199 short sales, 161–162 short-term price movements, 169 strategies, 268–269 total return from, 58 vs Treasury bonds, 171 value, 105–106 subprime borrowers, mortgages to, 224 success, past vs future, 18 sunk costs, 129–130 Super Bowl game, ads, 57 Super Bowl stock market predictor, 36–37 The Superinvestor Files (Hume & Associates), 40 surprises, 11–13 Swensen, David, 152, 154, 156 taxes benefits for selling stocks with falling prices, 222 on capital gains, 128, 163–164 credits for capital losses, 165–166 on dividends, 117 in Fishers, IN, 260 for landlord, 257, 261–262 owner-occupied homes vs rental properties, 253 share repurchases and, 119 Taxpayer Relief Act of 1997, 76 technical analysis, 31–32 data mining trap, 34–35 Tele-Communications Inc., 216 Temco Service Industries (TCMS), 216 Texas Gulf Sulfur case (1968), 20 Texas Sharpshooter Fallacy, 189–190 The Theory of Investment Value ­(Williams), xiii TheStreet.com, 13 ticker symbols, 140–142, 215 302  INDEX Ticketmaster Online-CitySearch (TCMS), 216 time value of money, 65 timing the market, 169–175 Tobias, Andrew, 114 Tobin, James, xiii, xiv–xv q ratio, 102–105 total return from stock, 58 estimate, 83 tracking performance, 166–168 trading computerized systems, 42–44 costs, 163 tranches, 225 Transcontinental Realty Investors (TCI), 216 Traynor, Jack, 24 Treasury bonds, 59 average annual returns, 147–151 risk vs stocks, 67 vs stocks, 171 Treasury rate, 59 and cyclically adjusted earnings yield, 93 vs S&P dividend yield, 82 vs S&P earnings yield, 80, 81 trends, chasing, 23–24 The Triumph of Mediocrity in Business (Secrist), 132 Trust Company of the West (TCW), 222 Tversky, Amos, 130 Twain, Mark, 176, 241 uncertainty, 151 and disagreement, 13–14 unemployment rate, 89, 90 Unilever, 239–240 Union Carbide, 139 U.S banking system, 229 U.S Treasury, 227–228 value of growth, 69–72 rarity and, 47 value investing, xiii–xiv, xviii, 6, 157, 263 Value Line, 13 value stocks, 105–106 Vanguard, 161 Vanguard 500 Index Fund, 155 Vanguard Energy Fund, 219–220 Vanguard Total World Stock, 155–156 VCA Antech, 141 vertical-line charts, 32 volatility of annual returns, 147 voluntary transactions, by investors, Wall Street Journal, 10, 57–58, 60, 115, 131 Walmart, 75 Walt Disney, 109 Washington Mutual Saving Bank, 149–150 web crawler, 188 Wells Fargo Investment Advisors, 155 Williams, John Burr, 6, 48, 65, 67, 111 The Theory of Investment Value, xiii see also John Burr Williams (JBW) equation Wired, 42 Witter, Dean, 29 Xerox, 96, 97, 98 Yahoo, 57, 74, 187–188 Yang, Jerry, 187 Yardeni, Edward, 207 ABOUT THE AUTHOR Gary Smith, Ph.D., is a professor of economics at Pomona College His research has been featured in The New York Times, The Wall Street Journal, Forbes, Motley Fool, Newsweek, and BusinessWeek 303 BE S T - S E L L ER S F RO M A MA 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accounting, or other professional service If legal advice or other expert assistance is required, the services of a competent professional person should be sought Library of Congress data is available upon request ISBN: 978-08144-3856-5 EISBN: 978-08144-3857-2 © 2017 Gary Smith All rights reserved Printed in the United States of America This publication may not be reproduced, stored in a retrieval system, or transmitted in whole or in part, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of AMACOM, a division of American Management Association, 1601 Broadway, New York, NY 10019 The scanning, uploading, or distribution of this book via the internet or any other means without the express permission of the publisher is illegal and punishable by law Please purchase only authorized electronic editions of this work and not participate in or encourage piracy of copyrighted materials, electronically or otherwise Your support of the author’s rights is appreciated About AMA American Management Association (www.amanet.org) is a world leader in ­talent development, advancing the skills of individuals to drive business ­success Our mission is to support the goals of individuals and organizations through a complete range of products and services, including classroom and virtual seminars, webcasts, webinars, podcasts, conferences, corporate and government solutions, business books, and research AMA’s approach to ­improving performance combines experiential learning—learning through doing—with opportunities for ongoing professional growth at every step of one’s career journey 10 ... you in Money Machine If you want to increase your investing IQ, I’d highly recommend this book.” —Jeffrey H Ellis, CFA, MBA, Managing Member, L Street Capital Management, LLC $ MONEY MACHINE. .. lose any money True enough, his money wasn’t going to go below $1 million, but it wasn’t going to go much above $1 million, either He was losing a lot of money compared to how much money he might... to be that, in the stock market, anything that looks like free money is an illusion Some people actually believe this—I not Money Machine: The Surprisingly Simple Power of Value Investing makes