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The Large-Cap Portfolio, + Web site: Value Investing and the Hidden Opportunity in Big Company Stocks

Book Description

The practical guide to finding value and opportunity in large-cap stocks using investor behavior

Large-Cap is an abbreviation of the term "large market capitalization" and refers to the stock of publicly traded companies with market capitalization values of roughly more than $10 billion, like Walmart, Microsoft, and Ford. Because of their size, the conventional view is that these companies do not present investors with an ability to be opportunistic. The Large-Cap Portfolio + Website argues that, contrary to popular perceptions, significant opportunities exist in these stocks.

Written with a fluency that both the savvy amateur and professional investor will understand, the book fills a void in the market by offering the practitioner a methodology to identify and approach the major assumptions that underlie valuation, with an emphasis on issues that are more relevant to the analysis of large-cap stocks.

  • Full of useful information on how to reap the rewards of stocks that most investors avoid

  • Presents essential insights into understanding stock valuation

  • Includes an actionable chapter devoted to portfolio management

Packed with timely instruction, Large-Cap Portfolio gives readers invaluable insights and examples of how to build portfolios that will out-perform broad market benchmarks.

Table of Contents

  1. Cover
  2. Contents
  3. Title
  4. Copyright
  5. Dedication
  6. Acknowledgments
  7. Preface
  8. Part I: The Large-Cap Opportunity and Challenge
    1. Chapter 1: Trends in Large-Cap Investing and the Opportunities They Present
      1. Defining a Large-Cap Stock
      2. Understanding the S&P 500 Index
      3. Examining the Growth of Indexed Equities
      4. Defining Active Management
      5. So What Does This Mean for Investors?
      6. Two Additional Considerations
      7. Finally, Something Timely
      8. Conclusions
      9. Notes
    2. Chapter 2: Risk and Uncertainty
      1. Financial Measures of Risk
      2. Accounting Measures of Risk
      3. Differentiating between Certain and Uncertain Cash Flows
      4. Conclusions
      5. Notes
  9. Part II: Market Inefficiency
    1. Chapter 3: An Introduction to Market Efficiency
      1. The Basis for Market Efficiency
      2. Efficient Markets Hypothesis
      3. Empirical Support for the Efficiency of Markets
      4. Conclusions
      5. Notes
    2. Chapter 4: Evidence of Inefficiency in Investor Behavior and Market Behavior
      1. Closed-End Fund Discounts and Premiums
      2. Market Bubbles and Market Crashes
      3. Investors vs. Their Investment . . . or Investors vs. Themselves
      4. Book-to-Market Effects and Other Value Criteria
      5. Conclusions
      6. Notes
    3. Chapter 5: Individual Decision Making
      1. That Thing about Our Being Rational . . .
      2. Bayesian, Non-Bayesian—What Does This Mean?
      3. Great Companies Always Make Great Stocks
      4. Representative Sequences
      5. Now That You Put It That Way . . .
      6. Dropping an Anchor in a Sea of Information
      7. Conclusions
      8. Appendix: Utility Theory and Prospect Theory
      9. Notes
    4. Chapter 6: Correlated Mistakes and the Failure of Arbitrage
      1. Herding and Why We’re Predisposed to Correlated Mistakes
      2. Evidence of Herding in Securities Markets and in the Analysis of Common Stocks
      3. Feedback Mechanisms and Mood Contagions
      4. Smart Arbitrageurs Will Save Us! Won’t They?
      5. Some Related Considerations in Approaching the Active Management of Investments
      6. Conclusions
      7. Notes
    5. Chapter 7: Conventional Views on Sources of Market Inefficiencies
      1. Structural Impediments to Market Efficiency
      2. Pertinence to Large-Cap Universe
      3. Conclusions
      4. Appendix: Underexplained Market Phenomena
      5. Notes
  10. Part III: Research and Portfolio Management
    1. Chapter 8: Identifying Large-Cap Stock Opportunities and Optimizing Research Processes
      1. Identifying Large-Cap Stock Opportunities
      2. Filters and Relative Assessments of Value
      3. Subjective Identification of Overoptimism and Overpessimism
      4. Overconfidence, Information Overload, and the Structure of Investment Firms
      5. Conclusions
      6. Notes
    2. Chapter 9: Approaching Growth in Large-Cap Stock Research
      1. Are We Good at Predicting Growth?
      2. Equity Valuation Basics
      3. Limitations to Estimating Long-Term Growth Rates
      4. Abnormal Growth Magnitude and Abnormal Growth Duration
      5. Traditional Methods for Determining Growth
      6. Perversions of Growth Estimates in Large-Cap Stocks
      7. Recognizing that Markets Are Efficient over the Long Term: A Refresher on Microeconomic Theory
      8. Some Further Considerations When Predicting Growth Rates
      9. Solutions
      10. Conclusions
      11. Notes
    3. Chapter 10: Hewlett-Packard Company Case Study
      1. A Look at HPQ’s Historical Performance and Operations
      2. Behavioral Biases and Evidence of Analyst Overreaction
      3. Evaluating the Market’s Assessment of HPQ’s Growth Prospects
      4. Pulling It All Together
      5. Appendix: Calculating Underlying Assumptions Relevant to the Valuation of HPQ
      6. Notes
    4. Chapter 11: The Challenges of Managing Large-Cap Common Stock Portfolios
      1. Understand Your Universe and Benchmark
      2. Off-Benchmark Securities
      3. Position Sizes
      4. Turnover
      5. Commodity-Oriented Holdings in the Large-Cap Portfolio
      6. Macroeconomics and Portfolio Management
      7. Conclusions
      8. Notes
  11. What’s on the Companion Website
  12. About the Author
  13. Index