Valuing Wall Street

The U.S. stock market is massively overvalued. As a result, the Dow could easily plummet to 4,000 - or lower - losing more than 50 percent of its value, wiping out nest eggs for millions of investors. So argue Andrew Smithers and Stephen Wright in Valuing Wall Street: How to Predict and Plan for Market Bubbles. Using the q ratio developed by Nobel Laureate James Tobin of Yale University, Smithers & Wright present a convincing argument that shows the Dow plummeting from its peak of 9600 to lows not seen in a decade. Tobin's q, the controversial method for valuing stock markets which has successfully called every major market top this century, is the ratio of market value to replacement cost of assets and liabilities. Using q, Smithers & Wright show the risks associated with Wall Street, how to predict a burst in the bubble before it's too late, and what to do when the market plunges. While q has been discussed in Stocks for the Long Run and The Bear Book, Smithers & Wright present the first comprehensive guide to using this ratio. In Valuing Wall Street, investors will learn the importance of q and how to calculate it. Smithers and Wright argue that Tobin's q implies extremely important messages about the future of U.S. and international economies, providing crucial information for today's individual investors who have much of their savings based in equities. Using q can help all investors hang on to their returns when the market tanks - a concern for all investors in light of the market's recent turbulence and cries of massive overvaluation. Smithers and Wright present an easy-to-read argument from which long-run investors are sure to learn - but not by looking through rose-colored glasses. The team sends up a red flag for the droves of investors who have hopped on the bandwagon, ignorant of (or choosing to forget) the inherent risks involved in the stock market. Valuing Wall Street will show investors how to recognize dangerous turns in the market - and how to protect themselves. In the tradition of Stocks for the Long Run, Smithers and Wright emphasize how to learn from the history of stock returns, substantially increasing, though, the analysis which focuses on the advantages and pitfalls of stocks from the perspective of an investor. The book serves as a guide to overall investment strategy for the long-term investor, offering prescriptive material such as: The link between q and risk; The contrasts between stock picking and the overall decision of whether to buy stocks at all; How to recognize solid investments as alternatives to stocks

About the Author :
Andrew Smithers is founder of Smithers & Co., which provides economics-based asset allocation advice to 70 of the world's largest fund management companies in London, New York, Boston, and Tokyo. He is a columnist for London's Evening Standard and the Tokyo Nikkei Kinnyu ShimbUn Market Eye, and is regularly quoted in the New York Times, Barron's, Forbes, The Economist, The Independent, and the Financial Times. Stephen Wright Studies economics at Cambridge University, where he won the Adam Smith Prize and achieved the highest First Class degree of his year. He spent several years as Chief Economic Forecaster with the Bank of England, where he headed macroeconomic forecasting and the maintenance and development of the bank's quarterly model of the UK economy. He currently is on the Faculty of Economics and Politics at Cambridge University. His work, along with Mr. Smither's, has been cited in the New York Times, Barron's, Forbes, The Economist, and the Financial Times.