The best book I ve read this year case studies coupled with academic findings just how I like my theory reading Carlisle makes the case for intrinsic value relative to earnings or the inverse the acuirer s multiple as the only measure of value worth pursuing The author rushes through analyses which makes it difficult to follow the logic at times but provides copious supporting data for his argument in the form of charts tables and other figures so the reader can follow along visually Hands down one of the best books I have read to this date read it twice in 6 months it offers counter intuitive ideas and facts and backed by uality statisticsLong version reviewMean reversion in business is pervasive can think of CYCLICAL NATURE OF BUSINESSES HIGH RETURN nature of businesses High return attract competition and drives down return to the point where the invested capital can no longer make any profit or even endure loss some in the industry then choose to exit and so the returns move gradually to the peak again In a cruel irony businesses find capital in abundance both from retained earnings and outside investors when they need it least and scarce when they need it most In light of this when we find a company increasing its CAPEX during trough years it may be a good investment opportunity as it might be a shining star when the relevant industry starts seeing some improvementThe book also shows how activismcreates enormous values for investors citing examples from Carl Icahn and other prominent investors It suggests that Graham net current asset value strategy though has limited applications and Acuirer s multiple can be used to identify company which have characteristics that typically attract activists undervaluation large cash holdings and low payout ratios hence providing asymmetric market beating returns However it has be noted that these companies usually have poor trends of earnings which make us hard to buy into it psychologically Buffett has said It s far better to buy a wonderful company at a fair price than a fair company at a wonderful price The data show however. The economic climate is ripe for another golden age of shareholder activism Deep Value Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations is a must read exploration of deep value investment strategy describing the evolution of the theories of valuation and shareholder activism from Graham to Icahn and beyond The book combines engaging anecdotes with industry research to illustrate the principles and methods of this complex strategy and explains the reasoning behind seemingly incomprehensible activist maneuvers Written by an active value investor Deep Value provides an insider's perspective
READ Deep ValueFor those of us who don "t have Buffett s talent that the low or no growth value stocks are the consistent "have Buffett s talent that the low or no growth value stocks are the consistent It seems that the uglier the
fundamental business trend the better the return even when the valuations are comparable This is deep valuebusiness trend the better the return even when the valuations are comparable This is deep value Reason Mean reversionSome interesting factssentences1 Apple Inc was a net net stock back in October 2002 It possessed 78 cash per cash net of all debts and was sold at 72 Mean reversion in the markets looks a lot like the gambler s fallacy made real movements in security prices individually and in aggregate tend to be followed by subseuent price movements in the opposite direction3 LowNo Growth Value Stocks outperform High Growth Value Stocks This is a fascinating finding Intuitively we are attracted to high growth and would assume that high growth value stocks are high uality stocks available at a bargain price The data show however that the low or no growth value stocks are the better bet It seems that the uglier the stock the better the return even when the valuations are comparable4a Profitable Net Nets underperform Loss Making Net Nets 4b Dividend Paying Net Nets underperform Non Dividend Paying Net Nets5 Buffett concluded from his experience with Berkshire s relentlessly lossmaking textile business that Should you find yourself in a chronically leaking boat energy devoted to changing vessels is likely to be productive than energy devoted to patching leaks 6 The research shows that the typical company targeted likely to be productive than energy devoted to patching leaks 6 The research shows that the typical company targeted activists has poor recent stock performance a low valuation a large cash holding and few opportunities for growth Short version reviewSo what is the implication of this book for us in real life what is the practical useBuy companies with low Acuirer s multiple as data has shown in aggregate they will outperform any other metrics Explanation low Acuir A line from the book Rats beat the MBAs sums up the point of this book If you re of the belief that biases cannot be controlled and that one cannot gain any competitive advantage over others by improving judgment and analytical skill N shareholder activist strategies in a format accessible to both professional investors and laypeople The Deep Value investment philosophy as described by Graham initially identified targets by their discount to liuidation value This approach was extremely effective but those opportunities are few and far between in the modern market forcing activists to adapt Current activists assess value from a much broader palate and exploit a much wider range of tools to achieve their goals Deep Value enumerates and expands upon the resources and strategies available to value investors today and describes how the economic climate is allow.
Tobias E. Carlisle