Valuing Wall Street: Protecting Wealth in Turbulent Markets

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9780071354615: Valuing Wall Street: Protecting Wealth in Turbulent Markets

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:

"Most books about the stock market tell you how to make money. This one ... will show you how to avoid losing it," begins this smart, blunt, cautionary tale based on Nobel laureate James Tobin's 1969 "q ratio," which posits, among other things, that no matter how bullish a market gets, it's bound to snap back into place at some point--and those who don't brace for the reversal will feel its sting. The authors, one a prominent asset-allocation adviser and the other a former head of macroeconomic forecasting for the Bank of England, warn that it's only a matter of time before the overexuberant market of the early 21st-century topples like its counterparts in 1929 and 1968. Here they set out to show why and how this will happen--as well as to tell stockholders what they should and should not do if they want to emerge intact.

After making a cogent new argument in defense of the still-controversial q ratio, the authors show how it plays into principles of stock-market risk and return, how it has determined the value of Wall Street in the past and will continue to do so, and how to apply it as a practical investing tool. They do a neat job of parsing the good and bad news about stocks as a sound investment for the future, and of what to do and not do with one's money come the inevitable bear market. From there, they get down to the nitty-gritty of valuing the stock market, providing four key tests for any indicator of value and explaining how to fold in such factors as the dividend yield, the price-earnings ratio, the adjusted price-earnings multiple, yield ratios, and yield differences. They wrap up with a look at what they call "the q debate" among both economists and stockbrokers, and finally, they apply the q ratio specifically to the U.S. economy, rebuking Alan Greenspan's Federal Reserve for its role in what they see as the coming U.S. bubble burst.

With its plain English, helpful illustrated charts, vivid examples from history, and even the occasional employment of the likes of Alice in Wonderland to prove its points, Valuing Wall Street should be accessible to those with a working understanding of the market and economic principles. All told, this book is not so much a how-to as it is a theoretical forecast whose tidings investors might want heed as we near what Smithers and Wright warn are rough years ahead. --Timothy Murphy

From the Back Cover:

A Reality Check on Today's Stock Market­­Including Easy-to-Follow Strategies for Protecting Your Assets.

"Wonderfully readable, this book's clear, direct logic borrows on Jim Tobin's concept of q to explain why the marvelous past is not only not prologue to perpetually higher and higher market valuations, but is the probable cuase of future returns being so small at best, and at worst, perhaps suddenly reversed."

­­Charles Ellis, Managing Partner, Greenwich Associates

"Andrew Smithers is one of the five best, most dispassionate, erudite analysts in the world. This is a book to read and chew on."

­­Barton Biggs, Global Investment Strategist, Morgan Stanley Dean Witter

"It takes a brave man to forecast the movement of the markets. But Andrew Smithers and Stephen Wright are the Cassandras of the New York Stock Exchange. Armed with an analysis based on q, the ratio between stock market prices and underlying capital value, they predict that the NYSE is facing a severe fall. They make their case clearly and forcefully. Investors should read and beware."

­­Professor Charles Goodhart, Monetary Policy Committee, Bank of England

"Andrew Smithers & Stephen Wright make a powerful economic argument that the New York stock market is 'wildly overpriced,' with shares 'at ridiculous levels,' calculated by them using Nobel Laureate James Tobin's q, or the ratio of share price to net worth of companies, at 1 1/2 times."

­­Professor Charles Kindleberger, Massachusetts Institute of Technology

"Smithers and Wright provide a guiding principle, based on theory, common sense and history, that should help all investors­­professional or amateur­­achieve better long run returns at much lower risk. The authors are currently serious bears; to pay attention to their case now could be the reader's most important financial decision."

­­Jeremy Grantham, Grantham, Mayo, Van Otterloo

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Smithers, Andrew, Wright, Stephen
Published by McGraw-Hill Companies (2000)
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Smithers, Andrew; Wright, Stephen
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