There is a book that has been known only to stock investment experts for over 20 years and has been kept quiet.
This is the book, “Predictive Investment.”
This is a book written by Michael Mauboussin (Professor at Columbia Business School), who has a large readership in Korea, and Alfred Rapaport (Professor Emeritus at Northwestern University's Kellogg School of Management), who has been at the forefront of popularizing 'shareholder value.'

Because it is public information, it contains new insights into 'stock prices', which are often overlooked or misused.
In other words, you can generate excellent returns simply by correctly predicting changes in expectations contained in stock prices.
In short, it presents a 'scientific investment solution that utilizes expectations contained in stock prices.'

This revised edition, newly released after 20 years, is the latest expanded edition with upgraded content.
The book is also over 400 pages thick.
It truly lives up to the praise of an investment expert who said, “This book laid the foundation for investing, a book I don’t want to tell anyone else about.”

The core message of this book is that to achieve superior long-term returns, you must first acquire the ability to accurately read market expectations and anticipate changes in those expectations.
Stock prices are the sum total of investors' expectations, and changes in these expectations are key to determining the success or failure of an investment.
---From Chapter 1, "Why 'Predictive Investment' Works"

Traditional Discounted Cash Flow (DCF) analysis requires predicting future cash flows to value a stock.
However, predictive investing is done in the opposite order.
We first look at the stock price, which is often underutilized despite containing a lot of information, and then calculate the expected future cash flows needed to justify that stock price.
The expected value obtained in this way can be used as a measure for buying, selling, and holding stocks.
---From "Chapter 2: How the Market Values ​​Stocks"

Predictive investing is based on two simple ideas:
First, you can read the market expectations reflected in the stock price.
Second, simply predicting changes in expectations embedded in stock prices can yield high returns.
To understand market expectations, we use the discounted cash flow method.
Because that's how the market values ​​stocks.
Expectations embedded in stock prices can be expressed using operating value drivers, including sales growth rate, operating profit margin, and reinvestment rate.
---From "What should we look at to predict changes in expectations in Chapter 3?"

The goal of managers is to create value through a return on investment that is higher than the cost of capital.
As a result, if the corporate value continues to increase, it is evidence of a competitive advantage.
Therefore, companies conduct competitive strategy analysis when making management plans and decisions.
Because a good competitive strategy must be well executed to create a competitive advantage.

But investors play a different game.
Investors achieve superior returns when they correctly anticipate changes in market expectations about a company's performance.
Even if you invest in the stocks of companies that are best at creating value, you won't be able to achieve high investment returns if future performance is fully reflected in the stock price.
This is why a good company doesn't necessarily mean its stocks are good.
Competitive strategy analysis is necessary as a means of predicting changes in expectations when making investments.
---From "Chapter 4: Analysis of 'Competitive Strategy' is Needed"

To accurately read the expectations embedded in a stock price, you need to think in terms of the market.
The way the market sets prices is the long-term discounted cash flow model.
However, investors consider predicting future cash flows to be incredibly risky.
This also makes sense.
It is not easy to make a proper long-term forecast, and it is common for the biased thinking of investors making the forecast to be highlighted.
Warren Buffett said, “Predictions tell us more about the person making the prediction than about the future.”
So where does the answer lie?

The ideal solution is to abandon the burden of cash flow forecasting and use discounted cash flow.
This is exactly how predictive investing works.
Instead of forecasting cash flows, predictive investing uses discounted cash flow to "read" what the market believes about a company's future performance based on the current stock price.
Estimating price-implied expectations (PIE) embedded in stock prices is the starting point of the predictive investment process.
---From "How to Read Expectations in Chapter 5 'Stock Prices'"

Before explaining how to read market expectations, let me add one final word.
As teachers, stock analysts, and consultants, we who wrote this book have analyzed market expectations for numerous stocks, and the results are usually surprising to investors and corporate executives.

Investors who believe the market is short-term oriented are often surprised to learn that the market actually has a long-term perspective.
Even company executives who believe the market consistently undervalues ​​their stock are sometimes surprised to discover that market expectations are much higher than they realize.
So, be prepared to be surprised the first few times you encounter the price-inherent expectation, or PIE.
---From "How to Read Expectations in Chapter 5 'Stock Prices'"

The 'Expectation Change Framework' enables a systematic analysis of the elements that constitute shareholder value.
And competitive strategy analysis allows us to evaluate industry attractiveness and the strategies a company chooses.
Utilizing these two tools will provide crucial insights into the potential for changes in market expectations.
---From "Chapter 6: When Expectations Change, Opportunities Also Occur"

The decision to buy depends on two factors:
The first factor is the 'margin of safety', the rate at which the stock price is discounted from its expected value.
The greater the stock price discounts relative to its expected value, the greater the expected excess return.
Conversely, the more the stock price is overvalued, the stronger the selling opportunity becomes.
---From "Chapter 7: The Best Trading Scenario"

For companies facing uncertainty, the stock price is calculated by adding the discounted future cash flows of the current business to the value of the real option.
Real options provide value for uncertain growth opportunities.
---From "Chapter 8 Growth Opportunities and the Value of 'Investment Choices'"

We believe that the fundamental principles of economics remain unchanged and still explain value creation well, regardless of company type or business structure.
The principles of value creation apply to all companies without exception, and therefore, they are crucial in the predictive investment process.

---From "Chapter 9 Business Types and How to Use Predictive Investment"

The golden rule for stock buybacks is:
“A company should repurchase its own shares when the stock price is below its expected value and there are no better investment opportunities.”
---From "Chapter 11: Signals Sent by 'Share Buybacks'"

Predictive investing is a process that leads to finding the difference between price and expected value.
To properly conduct expected value analysis, it is necessary to input appropriate probabilities for various scenarios based on value change triggers, such as sales growth, and results that can be calculated using the 'expected value change framework.'

---From "Chapter 12: 8 Investment Ideas That Will Make You Money"