Swing Trading For Dummies, 2nd Edition

Chapter 7

Understanding a Company, Inside and Out

IN THIS CHAPTER

Conducting fundamental analysis through financial statements

Breaking down the key elements of financial statements

Considering qualitative data

Comparing a company to its peers with relative valuation

In the roaring 1920s, stocks skyrocketed through the stratosphere and investors paid astronomical values for companies with borrowed money. The ensuring crash wiped out fortunes for many. From the dust of the crash came a seminal work that offered investors a methodology of valuing companies to help prevent a speculative fever from overtaking Wall Street again (but alas, human nature never changes). Benjamin Graham and David Dodd — professors at the time at Columbia Business School — published a seminal work in 1934 on corporate valuation called Security Analysis. They implored investors to focus on a company’s intrinsic worth, examine a company’s balance sheet, and only invest when there is a sufficient “margin of safety.”

In 1938, John Burr Williams wrote The Theory of Investment Value, which argues for determining ...