This book has taken me almost four decades to write. And that makes the task of writing this Preface so difficult. If I might, I would like to offer some simple but hopefully helpful advice and insight into this profession: Learn from anyone and everyone. You’ll be surprised what information you can glean about business from about anyone you might meet. Ask about their job, what (if not nonpublic and material) their company could be doing to become more efficient, what it might be doing wrong or well, as well as the firm’s customers, clients, and competition.

While all security analysts like to spend time with the chief financial officer (CFO), in a large organization it’s really the professionals that report to the CFO who carry the valuable information and expertise. For instance, if possible, I like to speak to the individual who wrote particular footnote sections of the 10K or 10Q, such as the manager of global tax or the pension manager.

Now that the industrialized world is entering its second decade of slowing economic growth, the analysis of cash flow and credit is coming to the forefront. With that Depression mentality in mind, I explain in this book my concept for how the entity can maximize free cash flow without impairing its growth. For without free cash flow, outside of selling assets, principal on debt cannot be reduced, and investors cannot be compensated.

The reason for this book, however, is my genuine concern that investors have not learned to program risk into their expectations. Even when they believe that they have, normally omitted are a multitude of factors that deserved careful attention but did not receive it. Without a careful assessment and evaluation of fundamental business and operating risks, the potential for negative surprise looms.

When building in such risks to expectations of reward in the form of cash flow, a superior investment model is created, including the estimate of fair value.