The BOOK

Finally, private investors can learn the stock-picking methods used by top industry professionals.

This best-selling book lifts the veil on my 25 years as a top equity analyst and hedge fund partner. 

After reading this book, you’ll know the step by step method I still use to analyse companies and select stocks that beat the market.

 

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In Smart Money Method, he explains his step by step approach to find stocks ideas and test their market-beating potential. He shows you how to:

  • Find profitable stock ideas
  • Test your thesis and make investment decisions 
  • Access quality of any business
  • Judge management’s ability
  • Identify shady account and avoid dying companies. 
  • Value any business to find bargain shares
  • Decide when to buy and sell
  • Monitor and manage your portfolio for the best results
  • Navigate the consequences of COVID-19

So you can avoid common pitfalls and start investing with confidence.

Clapham gives the inside track on how top hedge funds pick stocks and build portfolios to make outsize returns. Filled with real-life examples and war stories from a 25 year career in stockmarkets, the message is clear – you CAN beat the market. But you shouldn’t buy a single stock until you learn the secrets in this book.

peter

“AN EXTREMELY GOOD READ FOR ANYONE WANTING TO MASTER THE ART OF STOCK PICKING. THE AUTHOR HAS HAD AN UNCANNY KNACK OF SPOTTING WINNERS AND LOSERS THROUGHOUT HIS LONG CAREER.”

Peter Harrison | CEO of Schroders plc, a $650bn asset manager, and member of the FTSE 100

Peter was a client of Steve when he was a sell-side analyst, covering the transport sector, more years ago than Steve (or probably Peter) would like to recall.

“A BOOK CRAMMED WITH A LIFETIME’S PROFESSIONAL EXPERIENCE WITH PRACTICAL ADVICE YOU WON’T FIND ELSEWHERE. IF YOU ARE PICKING STOCKS AND YOU WANT TO SAVE TIME AND MONEY THE BEST PLACE TO START IS BY BUYING THIS BOOK.”

Russell Napier | Economist, Financial Historian and author of the book Anatomy of The Bear: Lessons From Wall Street’s Four Great Bottoms (‘a cult classic’ according to the FT)

Russell is founder and course director of The Practical History of Financial Markets course that is part of the Edinburgh Business School MBA, and originally encouraged Steve to produce the Forensic Accounting Course for a major Scottish institution.

"STEPHEN HAS DONE A GREAT JOB OF WRITING A BOOK THAT PROVIDES THE READER WITH A REPEATABLE FRAMEWORK IN WHICH TO EVALUATE INVESTMENT IDEAS. HE DOES THIS WITHOUT JARGON AND IN AN EASY TO READ AND ENJOYABLE FORMAT. THIS IS A GREAT BOOK FOR BOTH THE BEGINNING INVESTOR AS WELL AS THE INVESTMENT PROFESSIONAL LOOKING TO IMPROVE THEIR INVESTMENT SKILLS."

Jonathan Boyar | Principal of the Boyar Value Group

Steve met Jonathan when he was in London promoting his research srevice and they have stayed in touch. Jonathan kindly agreed to review the book.

“AN ESSENTIAL READ. LEVERAGE STEPHEN’S WEALTH OF EXPERIENCE AND BECOME A BETTER INVESTOR.”

Jon Moulton | Founder and Managing Partner of private equity firm Better Capital

Jon is a leading venture capitalist and he and Steve met when he presented in favour of Brexit at a Bloomberg conference. They have debated the issue since and Jon has given Steve invaluable counsel on venture capital investing (they have had mutual interests in more than one investment).

“I MET STEVE IN THE 1990’S, WHEN HE WAS AN ANALYST COVERING THE TRANSPORT SECTOR, SINCE THEN WE HAVE STAYED IN TOUCH AND I HAVE ALWAYS BEEN IMPRESSED BY STEVE’S DILIGENCE AND THIRST TO UNDERSTAND THE DYNAMICS OF A COMPANY AND ITS MARKET. THE SMART MONEY METHOD IS A GOOD READ FOR EVERYONE INTERESTED IN INVESTMENTS, BUT WILL BE OF PARTICULAR VALUE TO GRADUATE INVESTMENT TRAINEES AND NON-PROFESSIONAL INVESTORS, WHO ARE LOOKING FOR MORE COLOUR (AND MANY INTERESTING ANECDOTES) ON HOW PROFESSIONALS MAKE INVESTMENT AND DIVESTMENT DECISIONS.”

Sir Brian Souter | Co-founder of Stagecoach and Chairman of the Souter Investments family office, which focuses on private equity investments

Steve met Sir Brian as a transport analyst after he floated Stagecoach on the Stock Exchange – Steve still regrets not taking him up on the offer to test a double-decker on the skidpan.

“A SUPERB BOOK BY ONE OF THE ACKNOWLEDGED EXPERTS IN THE FIELD. CLEAR, COMPELLING AND BEAUTIFULLY STRUCTURED, THIS SHOULD BE REQUIRED READING FOR ANYONE WHO WISHES TO UNDERSTAND WHAT MAKES A GREAT INVESTMENT - OR A LOUSY ONE. EVERY YOUNG INVESTOR SHOULD READ THIS AND TAKE CAREFUL NOTE OF STEVE CLAPHAM‘S EXPERIENCE FROM A LIFETIME OF INVESTING.”

Quintin Price | Former Head of Equities and Credit, Blackrock

Quintin and I started as analysts at the same time, but he was smart enough to get out and into management at asset managers. After spells at Putnam and Gartmore, he ended up in charge of equities and credit at Blackrock, the world’s largest asset manager. He is now an NED and advisor. 

“WHEN TALKING TO STEPHEN I HAVE ALWAYS BEEN REMINDED OF WHAT WAS SAID ABOUT THE FOOTBALL PLAYER TERRY SHERINGHAM – HE RAN THE FIRST FIVE YARDS IN HIS HEAD. STEPHEN IS LIKE THIS – A DEEP INVOLVEMENT WITH COMPANIES AND MARKETS OVER A LONG PERIOD OF TIME HAS GIVEN HIM THE ABILITY TO SEE THE HIDDEN MOTIVE, THE START OF THE TREND, THE NEXT LIKELY DEVELOPMENT – WHILE OTHERS ARE STILL PUZZLING OVER WHAT HAS BEEN SAID.”

Dominic O'Connell | Business Editor, BBC Radio 4 Today programme

Dominic is the former Business Editor of the Sunday Times, where we had occasional contact, and when he moved to the BBC, he kindly asked me to “appear” on the 6.15 am Markets Today slot on the Today programme. It’s always great fun, although sometimes challenging when Dominic throws a curved ball.

"CLAPHAM'S EXCELLENT BOOK OFFERS A PRACTITIONER'S PERSPECTIVE ON FUNDAMENTAL ANALYSIS, DEMONSTRATING HOW TOP HEDGE FUNDS USE FORENSIC ACCOUNTING TECHNIQUES TO SEPARATE HIGH QUALITY, UNDERVALUED OPPORTUNITIES FROM VALUE TRAPS."

Tobias Carlisle | Manager of the Acquirers Fund (NYSE:ZIG) and author of The Acquirers Multiple.

Steve met Tobias when he “appeared” on the Acquirer’s Podcast in February, 2020.

"STEPHEN CLAPHAM’S FAST-PACED THE SMART MONEY METHOD HAS AT LEAST ONE IDEA ON EVERY PAGE THAT FUNDAMENTAL INVESTORS WILL WANT TO HIGHLIGHT IN YELLOW AND THEN ADD TO THEIR ANALYTIC TOOLBOX."

Hewitt Heiserman | Author It’s Earnings That Count: Finding Stocks with Earnings Power for Long-Term Profits

Steve got in touch with Hewitt after reading his book and he recommends Hewitt’s framework for certain applications in his Forensic Accounting Course. They occasionally swap notes on investing and accounting topics.

“A VERY COMPREHENSIVE BOOK ON THE WORLD OF RESEARCH AND ANALYSIS. STEVE DOESN’T JUST GUIDE YOU THROUGH ANALYSIS BUT ALSO TUTORS YOU IN HOW TO ‘THINK’ LIKE A PROFESSIONAL, SUCCESSFUL ANALYST. MOREOVER, THE BOOK INTEGRATES OTHER ALL-IMPORTANT FACETS OF INVESTMENT SUCH AS APPROACHES TO COMMUNICATION WITH DECISION-MAKERS AND CLIENTS, AND PORTFOLIO MAINTENANCE. THIS IS NO SURPRISE TO ME SINCE I FIRST MET STEVE 25 YEARS AGO WHEN HE WAS ALREADY A HIGHLY RATED ANALYST AND I WAS A CLIENT, AND SINCE THEN HE HAS HAD A SUCCESSFUL CAREER IN HEDGE FUND MANAGEMENT. THEREFORE, THE APPROACHES WHICH HEDGE FUNDS USE BUT RARELY DISCUSS CAN BE GLEANED FROM THIS AUTHORITATIVE BOOK. PACKED WITH PRACTICAL STEP-BY-STEP ADVICE IT IS CHATTY IN TONE WHEN IT NEEDS TO BE TO GET IMPORTANT MESSAGES ACROSS, AND THUS IS WONDERFULLY EASY TO READ.”

Ajay Gambhir | Former manager of the $2bn RWC Samsara equity hedge fund strategy

As Ajay indicated, he was a client of mine when I was on the sell-side and he was one of the most astute managers I knew. We stayed in occasional touch after I moved to the buyside, and he was kind enough to agree to look at the book.

“A TREASURE TROVE OF IDEAS AND INSIGHTS FOR SERIOUS INVESTORS”

INVESTORS CHRONICLE

The Smart Money Method provides a treasure trove of ideas and insights for serious investors. Processes that have been honed by author Stephen Clapham over a 30-year career as a top equity analyst provide valuable lessons into where investors can most profitably channel their research efforts, the most effective methods to use, and the many nuances that need consideration. Peppered with wry anecdotes and some candid views on the industry, Mr Clapham’s book also provides an illuminating gaze into the City and hedge funds. The Smart Money Method’s stated aim is to make its readers better at investing. While the book is light on the kind of how-to instructions that may serve a beginner, where it scores is in the abundance and richness of good ideas in its pages. So, buy it, read it and become a better investor.

Algy Hall | Associate Editor, Investors Chronicle

“I KNEW STEVE AS A SELL-SIDE ANALYST IN THE PAST AND HIS ANALYSIS LEAVES NO STONE UNTURNED. HIS BOOK OUTLINING HIS RESEARCH PROCESS IS A GREAT INTRODUCTION FOR YOUNG ANALYSTS AND WILL TEACH MANY EXPERIENCED ONES A THING OR TWO. RECOMMENDED.”

Martin Gilbert | Founder Aberdeen Asset Management, former Vice-Chairman of Standard Life Aberdeen, the largest active asset manager in the UK, and now Chairman of $5bn fintech Revolut

Martin was Chairman of FirstGroup when I followed the company as a sell-side analyst. Later when I was a partner of Toscafund Asset Management, the fund took a disclosable stake (29.9%?) in Aberdeen Asset Management.

“STEPHEN IS AN EXTREMELY PROFESSIONAL ANALYST WITH A LONG TRACK RECORD. I FOUND HIS BOOK EASY TO READ AND VERY HELPFUL IN TERMS OF HOW TO IDENTIFY SUITABLE COMPANIES TO INVEST IN.”

John Allan | Chairman of Tesco plc and Barratt Developments and Vice President of the CBI

I met John when he became CEO of Ocean Group – he was obviously a very capable manager and worth backing. He merged the company and then sold it to Deutsche Post ending up as CFO.  We stayed in occasional touch, especially after I started to follow Tesco closely, and he kindly agreed to give me a review. Mind you, ever canny, he insisted on a signed copy for his trouble.

"EVERY AMBITIOUS FOUNDER, HOPING TO REACH THE STOCK MARKET, SHOULD READ THIS BOOK TO LEARN WHAT TO EXPECT.”

Brent Hoberman | Co-Founder & Executive Chairman Founders Factory, Founders Forum, firstminute capital. Previously co-founded Lastminute.com

I started to cover lastminute.com as it was a different angle on travel and transport, my main sector and co-founders Brent and Martha Lane Fox were a breath of fresh air relative to the corporate heavyweights. I stayed in touch with Brent, whose energy and ambition always impress, and am an occasional visitor to Founders Factory. I am even an investor in one of their ventures. In spite of being exceptionally busy, Brent is always kind enough to make time to offer advice or give a book review.

“I CANNOT THINK OF A SINGLE INVESTOR WHO IS NOT STRUGGLING TO KNOW WHERE TO MAKE A DECENT RETURN. THE SMART MONEY METHOD IS THE FIRST INVESTMENT BOOK I HAVE READ WHICH SETS OUT INTELLIGENT, RIGOROUS AND EXPERT WAYS OF INVESTING IN OUR TOPSY TURVY WORLD. I HAVE FOLLOWED STEPHEN’S RESEARCH, EXTRAORDINARY RIGOUR AND BRILLIANCE FOR MANY YEARS AND THIS BOOK IS THE ENCAPSULATION OF THAT BRILLIANCE: IT IS CLEAR, CONCISE, LOGICAL AND THOROUGH. BACKED UP WITH SOLID EXAMPLES AND REAL WORLD SCENARIOS, IT OFFERS A FASCINATING AND JARGON-FREE INSIGHT INTO HOW THE SUPER-SMART, PROFESSIONAL INVESTORS GO ABOUT THEIR BUSINESS AND DRIVE LONG TERM GROWTH AND RETURNS. A MUST READ IF YOU CARE ABOUT YOUR, OR OTHERS’, MONEY.”

Lawrence Hunt | British born entrepreneur, founder and CEO of Silverjet, the former all business class airline, and now Chairman of media agency addmustard and other tech businesses.

I met Lawrence when he was raising the money for Silverjet. Later, he asked me to present to a group of HNW investors on the airline industry. I told them about the risks in the airline industry but such was Lawrence’s charm and persuasion that some of them invested anyway. We have stayed in touch since, co-invested in a spectacularly successful online business and when I asked him for help in how to market a book, he insisted on a free copy. 

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“THE RESEARCH AND DECISION MAKING PROCESS DESCRIBED HEREIN SHOULD PROVE USEFUL TO EQUITY INVESTORS AT ALL LEVELS. IN THE REMAINING INTERVAL WHILE HUMANS ARE STILL INVOLVED IN ANALYSING STOCKS, THOSE HUMANS WOULD DO WELL TO EMPLOY THIS DILIGENT APPROACH TO THE TASK.”

Lucy MacDonald | Private Investor. Former CIO Global Equities Allianz Global Investors.

I met Lucy last year when doing some feasibility work for a potential course on ESG and she kindly made time to explain the process she and the team followed at Allianz. We stayed in touch and as she had retired from Allianz, I asked if she might have enough time to review the book and she kindly agreed. 

olvier

"CRISP AND INCISIVE. A MUST-READ FOR ANYONE INTERESTED IN PICKING STOCKS AND UNDERSTANDING MARKETS."

Oliver Shah | Business Editor of the Sunday Times and author of Damaged Goods, the Inside Story of Philip Green

Steve met Oliver when he was the Property Correspondent at the Sunday Times. Steve was short of some related stocks and he and Oliver used to swap notes, and occasionally still do.

neil

“CONGRATULATIONS ON THE BOOK. I SPED READ IT YESTERDAY AND IT’S THE BOOK I WANTED TO WRITE! I HAVE READ A LOT OF INVESTMENT BOOKS AND I THINK IT’S THE BEST I’VE COME ACROSS FOR COVERING THE THEORY AS WELL AS THE PRACTICALITIES AND NUANCES OF PROFESSIONALLY MANAGING MONEY. I WISH I’D HAD IT AT THE START OF MY CAREER."

Neil Veitch | Global & UK Investment Director, Scottish Value Management
phil

HAVE JUST FINISHED READING THE SMART MONEY METHOD BY STEPHEN CLAPHAM. IT HAS BEEN ONE OF THE BEST AND MOST ENJOYABLE INVESTMENT BOOKS I HAVE READ FOR SOME TIME. IT IS BY FAR THE BEST BOOK ON THE PROCESS OF RESEARCHING COMPANIES AND STOCKS THAT I HAVE EVER READ.

Phil Oakley | Investors Chronicle and author of How to Pick Quality Shares
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BOOK REVIEW

I asked Dan Davies, author of Lying for Money , if he would mind writing a review of my book. I really enjoyed Dan’s book which I read when I was preparing my Forensic Accounting Course. I was expecting a couple of lines, but Dan wrote a whole book review……….

DAN DAVIES ON THE SMART MONEY METHOD

“Although we tend to hear more about big swinging macro funds or quant rocket scientists, it’s still the case that the majority of the money made in financial markets is through old fashioned stock picking.  And within the world of stock picking, consistently the most profitable thing to do – if you are good at it – is to find “special situations” where a 50% profit can be picked up on the long or short side.  This is the subject of “The Smart Money Method”.  It’s a book about how to pit your wits against the finest minds of the market and find stocks where the consensus view is badly wrong.

The interesting thing is that there are a lot more such situations than anyone cares to admit, even the finance professors.  Fisher Black, of the Black-Scholes option valuation model, used to say that a reasonable definition of an “efficient market” would be one in which it was difficult for a security to trade for less than half or more than double its true value.  Obviously, in a “factor of two efficient” market like this, there’s a lot of free money available for anyone who can spot even a couple of dozen of the really cheap stocks.

So why don’t more people do it?

Well, the answer is that it’s difficult, and it’s hard work.  Not by any means impossible – I once suggested to a friend that to be a successful equity stockpicker, you would need to put in roughly as much time and effort as a really serious birdwatcher puts into birdwatching.  That shouldn’t be too demanding a thing to ask.  Companies aren’t as nice to look at as birds, but they often act in more interesting ways, and for many people the money itself is an attraction.

Unlike birdwatching, though, it is not easy to find someone who will teach you how to pick stocks.  There are a hell of a lot books, but – and I have read dozens of them – they tend to be disappointing in a lot of the same ways.  About half of them are dumbed down summaries of 1920s textbooks on value investing.  Half of the remaining half are just lists of someone’s best ever stock picks.  The only one that professionals really rate is “Accounting for Growth” by Terry Smith, but that is now nearly thirty years old. (It’s still worth reading, even though nearly all the accounting standards it refers to have been revised).  So a good new book like this one which actually explains how the thing is done is extremely interesting.

Where “The Smart Money Method” stands out is that it gives actual, specific advice.  It doesn’t start by telling you “once you have found your idea …”, it tells you how to generate workable candidates.  Before getting into the weeds of financial analysis, it takes you through a due diligence process that will help to decide whether it’s worth cracking the spine on a set of accounts.  When it gets in to the accounts reading section, it doesn’t bury you in ratios or fascinating facts about individual industries – it takes you through the way in which a set of financial statements tells a story about the underlying business, and how to ask questions about that story and answer them.  It explains how to handle management meetings and how to develop the right kinds of industry contacts.  These are all tricks of the trade that people usually have to learn by apprenticeship on trading floors; you would have to fetch a hell of a lot of coffee to have some of these nuances explained to you.

In many ways, I’d put this book in a similar category to the dozen or so instructional manuals I have sitting next to my guitar case at home.   None of them have, so far, enabled me to immediately and effortlessly play bebop solos at 200 beats per minute.  But they all set out information, from people who knew what they were doing, in a way that tells you how to practice things which will make you play better.  Investing is at least as frustrating as playing a musical instrument – and Steve Clapham is unusual as an author in being honest enough to include some of his mistakes along with the greatest hits – but it’s a lot easier to get better if you know what you’re trying to achieve. “

Note: Amazon links are paid links as part of the Associates programs, and we earn referral fees. And we earn royalties on the book sales, obviously. Please buy copies for all your friends too. And your mother-in-law.

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