In the investment literature, a few notable examples stand out as classics that have continuously been republished under new editions.

Classics such as Benjamin Graham’s Security Analysis, or Burton Malkiel’s A Random Walk Down Wall Street. Graham’s book establishes many of the principles of fundamental analysis whereas Malkiel’s work, with its core belief in efficient markets, errs on the side of managed funds.

With many in the investment community now questioning and challenging the neoclassical orthodoxy of finance and investments theory (be it CAPM, EMH, Black-Scholes or Miller and Modiglianni), John Price’s The Conscious Investor seems to have been published at the ideal time.

Price’s new book very much falls in the Graham’s vein, with new areas being explored making it a worthy read in its own right.

As well as being comprehensive in the valuation techniques it explores, it is more importantly in today’s highly quantitative approach, accessible to the average investor. There is much, however, that would interest the professional if only as a reference guide.

There are essentially two themes running throughout the book; one is the focus on sound business practices as the key to driving high returns and the other is on the problematic nature of estimating intrinsic value. On this score, the concepts of earnings growth and “economic moats” protecting returns are the two salient features.

The focus on sound business practices is very much guided by the writings and examples of Warren Buffet.

Much of the analysis is underpinned by this general belief that investing is for the long-term and that above-average investment returns are underscored by sound business practices. Price offers many examples from either his own observations or from the writings of Buffett.

The issue of estimating the intrinsic value of shares is the core consideration of the book.  Price takes the reader through a brilliant exposition of the various equity valuation methods – be they balance sheet valuations, discounted dividend methods, PEG Ratios, expected rates of return and so on.

An excellent discussion of the strengths and weaknesses of the various approaches is provided. The analysis on the utility of the discounted cash flow approach is particularly poignant as he points out that the results derived are too sensitive to the initial inputs, particularly the expected return. For example, which approach is best, the CAPM or the WACC and all the nuisances associated with estimating or using those calculations, to begin with?

Perhaps Price’s biggest innovation in this book is the introduction of stress testing when estimating input parameters to models. The system, which he terms, ESAFETY, seeks to avoid negative earnings surprises when estimating, for example, forward-looking estimates of the price-to-earnings ratio. In a nod though to Graham and Buffett, Price cautions that such an analysis should always be done with reference to the underlying strength of sound business practices.

From the well-known established methods, Price delves into the less well-known and esoteric alternatives – including the use of earnings power charts, to the use of real options as alternatives in share valuation. The utility of these approaches is something that Price, though, seems to leave to the reader.

As a proponent of fundamental analysis he clear rejects the technical analysis and, as one would expect, is only in agreement with the efficient market hypothesis in so far as it rejects technical analysis. The response from practitioners and academics alike will be interesting to observe.

A discussion on portfolio management and diversification is one area missing throughout the book. It would have been nice to have had the same for these often complex topics along with those of valuation.