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Foreword. <p>Preface.</p> <p>About the Author.</p> <p>Chapter 1. Introduction.</p> <p>Theoretical Precision or Theoretical Resilience?</p> <p>Practical Difficulties as Well.</p> <p>Overview of Our Analysis.</p> <p>Chapter 2. Inflation Protected Bonds as a Valuation Template.</p> <p>The Formulas Behind the Intuition.</p> <p>TIPS versus Traditional Fixed-Rate Bonds – Measuring the Differences.</p> <p>A Peek Ahead.</p> <p>Chapter 3. Valuing Uncertain, Perpetual Income Streams.</p> <p>The Mathematical Development of Un-leveraged Firm Valuation.</p> <p>What Does the Valuation Formula Tell Us About Sensitivity to Inflation?</p> <p>Sensitivity to Real Discount Rates and Growth Factors.</p> <p>The Comparison with a Traditional Model of Firm Valuation.</p> <p>Chapter 4. Valuing a Leveraged Equity Security.</p> <p>Leverage in the Presence of Corporate Income Taxes.</p> <p>From Theory to Practice – Valuing an Enterprise When the Discount Rates are Known</p> <p>From Theory to Practice Part II – "Reverse Engineering" or Inferring Discount Rates from Observed Market Prices.</p> <p>Chapter 4 Supplement: The Relationship between the Leveraged Equity Discount Rate and the Debt to Capital Ratio for Highly Leveraged Companies.</p> <p>Chapter 5. Case Studies in Valuation during the Recent Decade.</p> <p>Case 1: Coca-Cola ("KO").</p> <p>Case 2: Intel ("INTC").</p> <p>Case 3: Procter & Gamble ("PG").</p> <p>Case 4: Enron ("ENE").</p> <p>Tying Up the Package:  The Practical Lessons from All Four Cases.</p> <p>Chapter 6. The Treatment of Mergers and Acquisitions.</p> <p>Generalizing from the P&G/Gillette Example.</p> <p>Applicability of the Results under Alternate Merger Terms.</p> <p>Analytical Postscript 1: Common Stock Buybacks and Issuances <u>Outside</u> the Merger Framework.</p> <p>Analytical Postscript 2: A Brief Word on Executive Stock Option Grants.</p> <p>Chapter 7. A Fair Representation? Broad Sample Testing Over a Ten-Year Market Cycle.</p> <p>Sample Descriptive Data.</p> <p>The Basic Valuation Results.</p> <p>Predictive Strength of the Model, the Whole Period.</p> <p>Predictive Strength of the Model, Sub-Periods.</p> <p>Chapter 8. Price Volatility and Underlying Causes.</p> <p>Deriving the Formula for Price Changes.</p> <p>Translating the Price Change Formula into Volatility Estimates.</p> <p>Digression: The Impact of Debt Leverage on Equity Volatility.</p> <p>Obtaining the Volatility of the Underlying Variables.</p> <p>Chapter 9. Constructing Efficient Portfolios.</p> <p>Extracting Expected Equity Returns from Observed Price/Earnings Ratios – Part I.</p> <p>Extracting Expected Equity Returns from Observed Price/Earnings Ratios – Part II.</p> <p>Extracting Expected Equity Returns from Observed Price/Earnings Ratios – Part III.</p> <p>Creating Efficient Portfolios – The Unconstrained Case.</p> <p>Creating Efficient Portfolios – The Case Where Asset Weights Are Required To Be Non-Negative.</p> <p>Computing the Variance/Covariance Matrix Inputs.</p> <p>Chapter 10. Selecting among Efficient Portfolios; Making Dynamic Rebalancing Adjustments.</p> <p>Reconciling Portfolio Desirability and Feasibility.</p> <p>Turning Theory into Easily Calculated Results.</p> <p>Adjusting for Changes in Long-Term Expected Returns on Common Equity.</p> <p>Adjusting for More General Changes in Risk-Adjusted Expected Returns.</p> <p>Recapitulation and an Important Caveat.</p> <p>Chapter 11. How Did We Arrive Here Historically? Where Might We Go Prospectively?</p> <p>The Next Crises of Confidence.</p> <p>Some Answers Begin to Emerge.</p> <p>What if Everyone Followed this Type of Model and Investing?</p> <p>The Next Steps.</p> <p>Appendix A. Mathematical Review of Growth Rates for Earnings, Dividends, and Book Value per Share.</p> <p>Constant Growth Rate Characterization.</p> <p>Transition from One Long-Term Growth Rate to Another.</p> <p>Focus on Share Growth Impacts.</p> <p>Appendix B. Sustainable and Non-Sustainable Inflation Rates.</p> <p>The Impact of Monetary Policy and Interest Rates on Price Level Changes.</p> <p>The Impact of "Real Shocks" on Measured Price Level Changes.</p> <p>Drawing Correct Inferences.</p> <p>Appendix C. Deriving the "Equity Duration" Formula.</p> <p>Appendix D. The Traditional Growth/Equity Valuation Formula.</p> <p>Appendix E. Adjustments Required to the Traditional Growth/Equity Valuation Formula in Order to Preserve Inflation Neutrality.</p> <p>Appendix F. Brief Recapitulation of the Miller 1977 Capital Structure Irrelevance Theorem.</p> <p>Appendix G. Time Series Charts of Un-leveraged, Inflation Adjusted Discount Rate Estimates.</p> <p>Appendix H. Comparison of Volatility of Pre-Tax and After-Tax Income.</p> <p>Appendix I. Relationship between Observed P/E Ratios and Nominal Interest Rates.</p> <p>Appendix J. Additional Background on Mathematical Optimization Subject to Constraint Conditions.</p> <p>Appendix K. Derivation of Asset Class Covariances.</p> <p>Appendix L. Expected Return and Variance/Covariance Inputs Underlying Chapter 9 and Chapter 10 Portfolio Examples.</p> <p>Bibliography.</p> <p>Index.</p>

<p>Peter C. Stimes, CFA, is a retired vice president and principal of Flaherty & Crumrine Incorporated. During his sixteen years with F&C, Stimes acted as a portfolio manager, head of quantitative research and securities analysis, and spent several years as treasurer and CFO of the closed-end funds managed by F&C. Stimes is actively involved with the CFA program and has been part of the CFA Voluntary Continuing Education Program since 1985. He has written and coauthored papers presented before the CFA Institute and various regulatory and legislative bodies. Stimes received both his undergraduate degree and his MBA from the University of Chicago.</p>

<p>Praise for Equity Valuation, Risk, And Investment</p> <p>"Equity Valuation, Risk, and Investment pulls off the difficult feat of making an original contribution to the core of investment theory. With a combination of mathematical rigor, historical perspective, and clear exposition, Peter Stimes provides invaluable insights into valuation and portfolio construction."<br /> —Martin Fridson, CFA, Publisher, Leverage World</p> <p>"Peter Stimes translates the arcana of valuation models into common sense and plain English. This book will be a useful reference for anyone who is focused on fundamental measures of valuation as part of their investment process."<br /> —Rob Arnott, Chairman, Research Affiliates, LLC, Editor Emeritus, Financial Analysts Journal</p> <p>"Peter Stimes successfully integrates his years of practical experience in both fixed income and equity markets to propose an altogether new way of considering risk and valuation in equity portfolios. He does this in large part by applying insights derived from recent capital market innovations to the work of previous academicians and practitioners, such as Leibowitz, Fama, and Miller. Among other things, what emerges calls into question much of the codification of modern equity markets (growth vs. value, large-cap vs. small, significance of P/E ratios, etc.) and cogently argues for portfolio managers and fiduciaries to consider new ways of discovering opportunities within these markets."<br /> —Lawrence B. Zuntz, former managing director, Institutional Business Division, Strong Capital Management</p> <p>"This book is an important resource for equity investors, in particular value investors. Peter Stimes, using his extensive investment experience and thorough understanding of financial theory and mathematics, develops, explains, and verifies the validity of an equity valuation model that adjusts for the effects of inflation. The book is written in a reader-friendly style."<br /> —Kevin Larson, CFA, Senior Vice President, CFO, and Treasurer, UniSource Energy Corporation</p> <p>"Behavioral finance, inflation adjusted equities, and a well thought out plan for long-term investment are ably described by Peter Stimes in his new book. His insight and experience have been used to produce an investment approach to help ameliorate the possible upcoming financial tsunami caused by retiring baby boomers. Investors, of all ages, can profit from applying his model to their investments."<br /> —Jeanne M. Boeh, PhD, Chair and Associate Professor, Economics Department, Augsburg College</p>

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