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Deep Value: How Shareholder Activist Hedge Funds Battle for Control of the World's Leading Corporations
The economic climate is ripe for another golden age of shareholder activism Deep How Shareholder Activist Hedge Funds Battle for Control of The World's Leading 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 on 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 liquidation 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 allowing value investing to re-emerge. Topics Target identification, and determining the most advantageous ends Strategies and tactics of effective activism Unseating management and fomenting change Eyeing conditions for the next M&A boom Activist hedge funds have been quiet since the early 2000s, but economic conditions, shareholder sentiment, and available opportunities are creating a fertile environment for another golden age of activism. Deep How Shareholder Activist Hedge Funds Battle for Control of The World's Leading Corporations provides the in-depth information investors need to get up to speed before getting left behind.
288 pages, Kindle Edition
First published January 1, 2014
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Displaying 1 - 29 of 41 reviews
May 18, 2017
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 - you probably will agree with what Carlisle has to say. This book basically describes an investing strategy that needs one to believe in as a concept (mean reversion) and invest in a diversified portfolio of stocks (30 to 50) without knowing a thing about the underlying businesses.
On the other hand if you're from the Munger school of thought, doing individual stock research and developing a conviction to build a concentrated portfolio will make better sense and you might find yourself arguing almost every important point Carlisle makes. Of course the difference in this approach being that you need to develop a good business acumen and do deep stock research to be able to develop a strong conviction in the first place.
Depending on your orientation, you will find this book to be either very useful or extremely useless. I read the book twice - once from the point of view of mean reversion based, pure quant value, diversified portfolio thinker, and the other time from the research based, business-partner type, concentrated portfolio thinker. I wasn't really convinced about the performance numbers since I think backtests would be hard to replicate in real life. Also, it is too difficult to blindly rely on a strategy that has worked in the past, without having strong reason to believe why the stock should outperform - hence making one refrain from allocating a large portion of the portfolio to such investments.
The explanations about the past performance of different strategies could've been shortened.
I must mention: I did find value in the first half of the book where Carlisle describes different investing styles of Graham, Munger & Buffett, Icahn, and Greenblatt. For anyone new to value investing this could be interesting, especially since Carlisle writes well and has explained various aspects of value investing in a good, easily-read manner. His understanding of Munger and Buffett is also good - a quality rare among quants who try to compartmentalise Munger and Buffett' style into some "strategy" jargon.
All in all worth reading, but I would've preferred to spend less if a kindle version was available.
On the other hand if you're from the Munger school of thought, doing individual stock research and developing a conviction to build a concentrated portfolio will make better sense and you might find yourself arguing almost every important point Carlisle makes. Of course the difference in this approach being that you need to develop a good business acumen and do deep stock research to be able to develop a strong conviction in the first place.
Depending on your orientation, you will find this book to be either very useful or extremely useless. I read the book twice - once from the point of view of mean reversion based, pure quant value, diversified portfolio thinker, and the other time from the research based, business-partner type, concentrated portfolio thinker. I wasn't really convinced about the performance numbers since I think backtests would be hard to replicate in real life. Also, it is too difficult to blindly rely on a strategy that has worked in the past, without having strong reason to believe why the stock should outperform - hence making one refrain from allocating a large portion of the portfolio to such investments.
The explanations about the past performance of different strategies could've been shortened.
I must mention: I did find value in the first half of the book where Carlisle describes different investing styles of Graham, Munger & Buffett, Icahn, and Greenblatt. For anyone new to value investing this could be interesting, especially since Carlisle writes well and has explained various aspects of value investing in a good, easily-read manner. His understanding of Munger and Buffett is also good - a quality rare among quants who try to compartmentalise Munger and Buffett' style into some "strategy" jargon.
All in all worth reading, but I would've preferred to spend less if a kindle version was available.
July 3, 2017
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 quality statistics.
Long version review:
Mean reversion in business is pervasive (can think of cyclical nature of businesses). High return businesses 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 improvement.
The book also shows how "activism"creates 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 Acquirer'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, for those of us who don’t have Buffett’s talent, that the low or no-growth value stocks are the more consistent bet. It seems that the uglier the fundamental business trend, the better the return, even when the valuations are comparable. This is deep value investing.
Reason? Mean reversion.
Some interesting facts/sentences:
1. Apple Inc. was a net net stock back in October 2002! It possessed $7.8 cash per cash net of all debts, and was sold at $7.
2. Mean reversion in the markets looks a lot more like the gambler’s fallacy made real—movements in security prices, individually and in aggregate, tend to be followed by subsequent price movements in the opposite direction.
3. Low/No 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-quality 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 comparable.
4a. Profitable Net Nets underperform Loss-Making Net Nets.
4b. Dividend-Paying Net Nets underperform Non Dividend-Paying Net Nets.
5. 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 more productive than energy devoted to patching leaks.”
6. The research shows that the typical company targeted by activists has poor recent stock performance, a low valuation, a large cash holding, and few opportunities for growth.
Short version review:
So what is the implication of this book for us in real life? what is the practical use?
Buy companies with low Acquirer's multiple. as data has shown, in aggregate, they will outperform any other metrics. Explanation: low Acquirer's multiple stocks are the targets of activists, creating enormous returns through shareholder engagements. Even without activism, mean reversion will work in favor of these stocks, improving relevant industries in later years, thus boosting earning and stock prices surge consequently.
Long version review:
Mean reversion in business is pervasive (can think of cyclical nature of businesses). High return businesses 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 improvement.
The book also shows how "activism"creates 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 Acquirer'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, for those of us who don’t have Buffett’s talent, that the low or no-growth value stocks are the more consistent bet. It seems that the uglier the fundamental business trend, the better the return, even when the valuations are comparable. This is deep value investing.
Reason? Mean reversion.
Some interesting facts/sentences:
1. Apple Inc. was a net net stock back in October 2002! It possessed $7.8 cash per cash net of all debts, and was sold at $7.
2. Mean reversion in the markets looks a lot more like the gambler’s fallacy made real—movements in security prices, individually and in aggregate, tend to be followed by subsequent price movements in the opposite direction.
3. Low/No 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-quality 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 comparable.
4a. Profitable Net Nets underperform Loss-Making Net Nets.
4b. Dividend-Paying Net Nets underperform Non Dividend-Paying Net Nets.
5. 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 more productive than energy devoted to patching leaks.”
6. The research shows that the typical company targeted by activists has poor recent stock performance, a low valuation, a large cash holding, and few opportunities for growth.
Short version review:
So what is the implication of this book for us in real life? what is the practical use?
Buy companies with low Acquirer's multiple. as data has shown, in aggregate, they will outperform any other metrics. Explanation: low Acquirer's multiple stocks are the targets of activists, creating enormous returns through shareholder engagements. Even without activism, mean reversion will work in favor of these stocks, improving relevant industries in later years, thus boosting earning and stock prices surge consequently.
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September 4, 20181.量化投資的優缺點：
1967年巴菲特在投資合夥信函中提到：自己在質化上有機率擁有很高的洞察力，然而洞察力通常相當罕見，量化派當然不需要洞察力，數字應該會像球棒一樣，敲擊你的腦袋。因此真正賺到大錢的人通常都是做對了質化決定的投資人。但是至少我認為，真正穩穩賺到錢的人顯然都是做出量化決定的人。
2.熱門股交易的迷思：
葛拉漢在證券分析中寫到：1929年大崩盤前的榮景，是由所謂的心理因素決定，當時的準則是不管是以多高的價格買進的好股(或績優股)，都是健全的投資，骨子裡都只是以投資為名，合理化向普遍的賭博熱潮幾乎全面投降的方式。這種心理現象與近年一些取得主導地位、卻不可捉摸的因素價值觀，如善意、經營管理、預期獲利能力等息息相關。這種價值因素雖然是真的，卻不受數學運算影響，因此衡量這些因素的標準具有極大的任意性，會隨著流行的心理產生極大的變化。
我們對不確定的未來事件下決定時會根據三個捷思、捷徑或經驗法則，協助我們把複雜的認知任務變成比較簡單的作法，但這些做法卻導致我們對未來事件做出不好的決定，因為這樣會造成我們去思考不相關的證據，因而移轉了考慮事情基本機率的注意。
這三種狀況分別是代表性、可得性、錨定與調整。
(1)「代表性」使我們只考慮到事情是否與既定印象相符，如果沒有特定的代表性資訊，我們較容易正確的依據機率做決策，但如果獲得沒有價值的代表性資訊後，則會傾向於忽視先驗機率。
例如要從去判斷從70位律師和30位工程師挑出的一人是律師還是工程師，判斷時若知道這個被選出來的人的特質，會依照特質來決定而不是根據機率。
(2)「可得性」引導我們只考慮能輕易想到的東西，因為這些東西和我們的個人經驗有關。例如評估中年人心臟病突發機率時，想到的是我們認識的人而不是考慮機率。
(3)「錨定與調整」會讓我們固守著第一印象，即使面對要我們改變觀點的額外證據仍然如此。
=>我們喜歡熱門股是出於該公司不久前的股價表現及獲利成長；或是因為這種股票有一些利多；或是我們分不清經營良好公司和良好投資標的的區別。同樣的直覺使我們規避獲利或股價下跌的公司。我們忽視了基本面而把注意力放在與預測其表現無關的因素上。
3.專注在低成長或毫無成長價值股的投資策略：
(1)估值比盈餘趨勢重要，便宜、低或毫無成長的投資組合，績效有系統地大幅超越昂貴、高成長的投資組合。
(2)即使在價值股投資組合中，高成長一樣會帶來低落的表現，低或毫無成長會帶來優越的表現。
和大盤報酬相比，深度超值股票組合的歷史統計大致能夠創造比較高的報酬率，虧損的年數比較少，但我們卻念念不忘深度超值個股比較可能碰到永久性的資本虧損，原因是連自認是價值型投資人也會受到認知偏誤和行為錯誤的拖累。因我們受到高成長吸引，會根據直覺假設高成長價值股是比較好的選擇，但研究顯示高成長價值股的表現不及低成長及無成長的價值股。對許多價值型投資人來說這是很意外的發現。
買進經營良好的公司股票、期望公司獲利成長會帶動股價上漲的策略忽略了目前股價可能已經反映公司和經營團隊的素質。如果目前的股價很適當(市場已經對公司的素質賦予溢價)，那麼最大的危險在於即使公司繳出預期的成長成績單，假以時日，公司還是會失去先有的光環。只有市場低估的公司素質的價值，這種策略才有可能獲得超額報酬。
我們直覺受到高成長吸引，假設高成長價值股是廉價供應的優質股票，我們也可能假設投資資本的高報酬率，符合巴菲特對優質企業的要求，問題在於資料顯示高成長和高報酬率的股票通常會讓人失望。競爭會對高報酬率發會作用，把領先的股票拉回團體中，能夠對抗競爭的企業很罕見。巴菲特的超群能力能夠找到永續存在的經濟護城河和居高不下的資本報酬率，配合上能幹和誠實的經營階層是巴菲特為優質公司的訂定的條件。然而，對於沒有巴菲特才能的人來說，低成長或毫無成長價值股是最能持續一貫的下注標的。
1967年巴菲特在投資合夥信函中提到：自己在質化上有機率擁有很高的洞察力，然而洞察力通常相當罕見，量化派當然不需要洞察力，數字應該會像球棒一樣，敲擊你的腦袋。因此真正賺到大錢的人通常都是做對了質化決定的投資人。但是至少我認為，真正穩穩賺到錢的人顯然都是做出量化決定的人。
2.熱門股交易的迷思：
葛拉漢在證券分析中寫到：1929年大崩盤前的榮景，是由所謂的心理因素決定，當時的準則是不管是以多高的價格買進的好股(或績優股)，都是健全的投資，骨子裡都只是以投資為名，合理化向普遍的賭博熱潮幾乎全面投降的方式。這種心理現象與近年一些取得主導地位、卻不可捉摸的因素價值觀，如善意、經營管理、預期獲利能力等息息相關。這種價值因素雖然是真的，卻不受數學運算影響，因此衡量這些因素的標準具有極大的任意性，會隨著流行的心理產生極大的變化。
我們對不確定的未來事件下決定時會根據三個捷思、捷徑或經驗法則，協助我們把複雜的認知任務變成比較簡單的作法，但這些做法卻導致我們對未來事件做出不好的決定，因為這樣會造成我們去思考不相關的證據，因而移轉了考慮事情基本機率的注意。
這三種狀況分別是代表性、可得性、錨定與調整。
(1)「代表性」使我們只考慮到事情是否與既定印象相符，如果沒有特定的代表性資訊，我們較容易正確的依據機率做決策，但如果獲得沒有價值的代表性資訊後，則會傾向於忽視先驗機率。
例如要從去判斷從70位律師和30位工程師挑出的一人是律師還是工程師，判斷時若知道這個被選出來的人的特質，會依照特質來決定而不是根據機率。
(2)「可得性」引導我們只考慮能輕易想到的東西，因為這些東西和我們的個人經驗有關。例如評估中年人心臟病突發機率時，想到的是我們認識的人而不是考慮機率。
(3)「錨定與調整」會讓我們固守著第一印象，即使面對要我們改變觀點的額外證據仍然如此。
=>我們喜歡熱門股是出於該公司不久前的股價表現及獲利成長；或是因為這種股票有一些利多；或是我們分不清經營良好公司和良好投資標的的區別。同樣的直覺使我們規避獲利或股價下跌的公司。我們忽視了基本面而把注意力放在與預測其表現無關的因素上。
3.專注在低成長或毫無成長價值股的投資策略：
(1)估值比盈餘趨勢重要，便宜、低或毫無成長的投資組合，績效有系統地大幅超越昂貴、高成長的投資組合。
(2)即使在價值股投資組合中，高成長一樣會帶來低落的表現，低或毫無成長會帶來優越的表現。
和大盤報酬相比，深度超值股票組合的歷史統計大致能夠創造比較高的報酬率，虧損的年數比較少，但我們卻念念不忘深度超值個股比較可能碰到永久性的資本虧損，原因是連自認是價值型投資人也會受到認知偏誤和行為錯誤的拖累。因我們受到高成長吸引，會根據直覺假設高成長價值股是比較好的選擇，但研究顯示高成長價值股的表現不及低成長及無成長的價值股。對許多價值型投資人來說這是很意外的發現。
買進經營良好的公司股票、期望公司獲利成長會帶動股價上漲的策略忽略了目前股價可能已經反映公司和經營團隊的素質。如果目前的股價很適當(市場已經對公司的素質賦予溢價)，那麼最大的危險在於即使公司繳出預期的成長成績單，假以時日，公司還是會失去先有的光環。只有市場低估的公司素質的價值，這種策略才有可能獲得超額報酬。
我們直覺受到高成長吸引，假設高成長價值股是廉價供應的優質股票，我們也可能假設投資資本的高報酬率，符合巴菲特對優質企業的要求，問題在於資料顯示高成長和高報酬率的股票通常會讓人失望。競爭會對高報酬率發會作用，把領先的股票拉回團體中，能夠對抗競爭的企業很罕見。巴菲特的超群能力能夠找到永續存在的經濟護城河和居高不下的資本報酬率，配合上能幹和誠實的經營階層是巴菲特為優質公司的訂定的條件。然而，對於沒有巴菲特才能的人來說，低成長或毫無成長價值股是最能持續一貫的下注標的。
September 18, 2016
"Extrapolation is instinctive while mean reversion is not."
In the era of moat and growth investing, this book provides much needed empirical evidence from across various time periods and markets, on how Graham type of strategies still outperform almost all other approaches. A must read.
Warning: The book is like an academic paper with tonnes of surveys and data. Not a very fluid read.
In the era of moat and growth investing, this book provides much needed empirical evidence from across various time periods and markets, on how Graham type of strategies still outperform almost all other approaches. A must read.
Warning: The book is like an academic paper with tonnes of surveys and data. Not a very fluid read.
July 7, 2020
N9 fue sencillo terminarlo (ya que tuve que sacar mis libros de finanzas de universidad) pero fue muy gratificante
September 7, 2017
Great summary of all forms of value investing: their origins, evolution and the world today. Starts reading like a research paper towards the end, but I don't mind it.
February 23, 2023
Wow. Just wow. Got me hooked from the first page.
For years now, I've always been curious as to the immense varieties and divergences of schools of thoughts that exist, all under the broad umbrella of value investing. Browse thru forums, the Value Investors Club, and you see people, on one spectrum, who go deep up their arses in Graham's OG Security Analysis, and on the other spectrum, apply the value principles sparingly and work in high frequency hedge funds lol. Then you have Buffett, who seems flexible enough in his approach yet still spits cannonballs of wisdom, who navigates the game with grace.
Deep Value hooks the reader in by presenting the reader with a seemingly impossible dilemma, at least for the value investor - Businesses seem most attractive from a balance sheet perspective at the peak of the cycle! And they seem like absolute dog crap at troughs. Then takes the reader thru a fascinating journey as to the philosophical advancements in value investing, and how Buffett has gracefully navigated this change. I've gained a deeper understanding of what it is that Buffett actually does - but whether in reality he's this deep up his arse in terms of the change of paradigm in value, is anyone's guess.
Carlisle is a very good writer, and has mastered the art of dangling intriguing research questions/ puzzles that leaves the reader itching to learn more. Presents research in a very comprehensible manner
I wish the book dived deeper into value traps tho, because that's the number 1 reason people shy away from deep value. He seems quick to emphasize that Buffett's skill is innate qualitative business intelligence which few can emulate. Also found many arguments in behavioural finance to be somewhat soft in nature - many conflicting theories like mean reversion and the gambler's fallacy, for example, can be turned on their heads by simply extending the assumptions.
Finally, all these cool studies that argue in favor of value and activism seem cool enough, but once you pick up the Journal of Portfolio Management or the Journal of Finance you see hundreds of other papers arguing in favor of other strategies and artfully cleaning their data to show a miraculous result. Once you consider the factors that go into consideration for making it to the publisher's pages in academia, that makes you more skeptical.
Confirmed my view that Graham was so incredibly ahead of his time on so many things (and which led to Buffett being ahead of his time, too). Was binging some old interviews by Graham and the stuff he described took modern finance decades to catch up with him.
All in all, a fantastic intellectual framework for thinking about value investing. Will return to this again. When reading this, couldn't wait to turn the page to see what new thing I could discover next
For years now, I've always been curious as to the immense varieties and divergences of schools of thoughts that exist, all under the broad umbrella of value investing. Browse thru forums, the Value Investors Club, and you see people, on one spectrum, who go deep up their arses in Graham's OG Security Analysis, and on the other spectrum, apply the value principles sparingly and work in high frequency hedge funds lol. Then you have Buffett, who seems flexible enough in his approach yet still spits cannonballs of wisdom, who navigates the game with grace.
Deep Value hooks the reader in by presenting the reader with a seemingly impossible dilemma, at least for the value investor - Businesses seem most attractive from a balance sheet perspective at the peak of the cycle! And they seem like absolute dog crap at troughs. Then takes the reader thru a fascinating journey as to the philosophical advancements in value investing, and how Buffett has gracefully navigated this change. I've gained a deeper understanding of what it is that Buffett actually does - but whether in reality he's this deep up his arse in terms of the change of paradigm in value, is anyone's guess.
Carlisle is a very good writer, and has mastered the art of dangling intriguing research questions/ puzzles that leaves the reader itching to learn more. Presents research in a very comprehensible manner
I wish the book dived deeper into value traps tho, because that's the number 1 reason people shy away from deep value. He seems quick to emphasize that Buffett's skill is innate qualitative business intelligence which few can emulate. Also found many arguments in behavioural finance to be somewhat soft in nature - many conflicting theories like mean reversion and the gambler's fallacy, for example, can be turned on their heads by simply extending the assumptions.
Finally, all these cool studies that argue in favor of value and activism seem cool enough, but once you pick up the Journal of Portfolio Management or the Journal of Finance you see hundreds of other papers arguing in favor of other strategies and artfully cleaning their data to show a miraculous result. Once you consider the factors that go into consideration for making it to the publisher's pages in academia, that makes you more skeptical.
Confirmed my view that Graham was so incredibly ahead of his time on so many things (and which led to Buffett being ahead of his time, too). Was binging some old interviews by Graham and the stuff he described took modern finance decades to catch up with him.
All in all, a fantastic intellectual framework for thinking about value investing. Will return to this again. When reading this, couldn't wait to turn the page to see what new thing I could discover next
November 6, 2021
Likely a practical investment methodology for retail investors but not a good one for institutional investors
Critical points to revisit:
- does it work for emerging markets, for CN/HK markets?
- Most of the cheap, no-growth companies tend to have small market cap, can’t even be considered as investable for II
- concerns about investment horizon: yep, maybe it works over the long term, then how about for short-term performance? How about the drawdown… didnt see much discussion about that
- US market is rather mature with sound legal system for activist investors. Don’t see that foundation in China markets yet. For substantial monitory investors to actually influence company management already sounds difficult. Let alone other value unlocking activities, eg company liquidation/sales, ousting CEO/chairman
Critical points to revisit:
- does it work for emerging markets, for CN/HK markets?
- Most of the cheap, no-growth companies tend to have small market cap, can’t even be considered as investable for II
- concerns about investment horizon: yep, maybe it works over the long term, then how about for short-term performance? How about the drawdown… didnt see much discussion about that
- US market is rather mature with sound legal system for activist investors. Don’t see that foundation in China markets yet. For substantial monitory investors to actually influence company management already sounds difficult. Let alone other value unlocking activities, eg company liquidation/sales, ousting CEO/chairman
March 6, 2018
In the first half of the book, Tobias Carlisle compares various metrics used to identify deeply undervalued stocks and presents cases from empirical research that show deep value stocks in general outperform growth/quality stocks. This outperformance is attributed to the phenomenon of mean reversion.
In the second half, and the more interesting one, Tobias really gets to the heart of deep value investing by depicting cases of deeply undervalued companies from the real world and narrating how corrective forces helped unlock their value to the shareholders.
In the second half, and the more interesting one, Tobias really gets to the heart of deep value investing by depicting cases of deeply undervalued companies from the real world and narrating how corrective forces helped unlock their value to the shareholders.
November 13, 2017
Carlisle makes the case for intrinsic value relative to earnings (or the inverse - the acquirer'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.
June 16, 2023
The basic idea of the book is that stocks revert to the mean based on the valuation alone. The author used EV/EBIT as the valuation factor and also reviewed quality factors - ROIC and others. The best predictor of future returns in backtests was simple EV/EBIT.
The return to the mean is caused by market reevaluating the stock often helped by activist investors forcing change on the company.
It works in theory but the ZIG ETF run by the author is pretty flat for the last several years.
The return to the mean is caused by market reevaluating the stock often helped by activist investors forcing change on the company.
It works in theory but the ZIG ETF run by the author is pretty flat for the last several years.
May 8, 2018
This is a collection of very detailed historical case studies with an interesting investing thesis hidden between the lines (and in the last chapter).
I enjoyed it, though would prefer more thesis, less history.
I enjoyed it, though would prefer more thesis, less history.
July 30, 2022
Rating: Skip
240 pages of research results, anecdotal evidence and Graham, Buffett and Icahn quotes and stories to make the case that (deep) value investing is the way to invest in stocks. Limited how-to. Read the shorter, less academic The Acquirer’s Multiple instead.
Extensive summary: https://jimbouman.com/deep-value-tobi...
240 pages of research results, anecdotal evidence and Graham, Buffett and Icahn quotes and stories to make the case that (deep) value investing is the way to invest in stocks. Limited how-to. Read the shorter, less academic The Acquirer’s Multiple instead.
Extensive summary: https://jimbouman.com/deep-value-tobi...
October 6, 2017
This book is borderline repetitive regarding the concept of mean reversion, but at the same time it is a treasure trove of counter-intuitive data on market beating deep value portfolios.
November 30, 2018
The best book I've read this year - case studies coupled with academic findings, just how I like my theory reading.
November 6, 2019
Data-driven analysis, plus summary of great investors' philosophy, applicable for individual investors.
Value (Enterprise Multiple (EV/EBIT), on a portfolio level, contributes to return.
Value (Enterprise Multiple (EV/EBIT), on a portfolio level, contributes to return.
March 29, 2020
My learning takeaway : A magical formula and the discernment to reduce the portfolio to a manageable size. The latter is a skillset.
May 26, 2021
Nice history of activism. You'll learn about the forrays of Buffett, Icahn, T Boone Pickens, Einhorn, and Dan Loeb. The key takeaway is that activism is the catalyst for deep value stocks.
November 9, 2021
Brilliant in theory except his ETF was crap. That said I think monetary policy since 08-09 has overturned all prior rules of style based investing.
November 3, 2022
Explained a powerful concept, mean reversion, so well.
Some mathematical aspects can be taken out as those are a bit redundant. Nevertheless, it is a great book on investment management.
Some mathematical aspects can be taken out as those are a bit redundant. Nevertheless, it is a great book on investment management.
March 22, 2023
This book is for you if you want to know about value investing, its core and its origin. With a HBR type case-study style (which of course, you can skip through).
April 28, 2023
Mind bending.
March 4, 2024
Most-pleasantly scattershot, and possibly correct.
May 21, 2017
Excellent overview of the history of value investing with a good balance of insights from both academic theory and real-world examples.
December 22, 2016
Tobias Carlisle talk - Authors @ Google
https://www.youtube.com/watch?v=1r1vJ...
Think of a matrix with stocks as being undervalued (columns 1,4,7) or overvalued (columns 3,6,9), and they are high quality (rows 1,2,3) or low quality (7,9,9)
1 2 3
4 5 6
7 8 9
Warren Bufffett vs Carl Icahn
Investment matrix sweet spot: Invests in 1 & 2 (great companies that are undervalued or at fair value) vs invests in 7 (deep value situations).
Philosophy: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." - Warren Buffett
"My whole history if you look at it, is not to buy businesses that are great. I don't pay retail. I go in when people say they're terrible. It's really the old Graham-and-Dodd philosophy. You go in when nobody likes it, but it's still ok." - Carl Icahn
Betting that excellent companies continue to be excellent vs betting on mean reversion e.g. companies mentioned in Tom Peters "In Search of Excellence" no longer became excellent the decade after he wrote the book.
Catalysts - the activist playbook:
1. Undervaluation
2. Operational inefficiency (3G's specialty: zero based budgeting)
3. Low payout policy and overcapitalization
4. Excess diversification
5. Independence, M&A
6. Poor governance
7. Undercapitalization
Time frame: favourite holding period is forever vs 2-3 years
"Time is a friend of the wonderful company, the enemy of the mediocre." - Warren Buffett
Risks: "Any investment strategy that is based upon buying well-run, good companies and expecting the growth in earnings in these companies to carry prices higher is dangerous, since it ignores the possibility that the current price of the company already reflects the quality of the management and the firm. If the current price is right (and the market is paying a premium for quality), the biggest danger is that the firm loses its luster over time, and that the premium paid will dissipate. If the market is exaggerating the value of the firm, this strategy can lead to poor returns even if the firm delivers its expected growth. It is only when markets under estimate the value of firm quality that this strategy stands a chance of making excess returns." - Aswath Damodaran
https://greenbackd.com/tag/aswath-dam...
e.g. Sun Art @ HK$12.64 in 2013; Hang Lung Properties @ HK$37 in 2007; Coca Cola @ $42 in 1998, Nifty Fifties
vs
Value traps (hence need activist catalyst); fraud e.g. Snowbird, Saxon Industries; poor corporate governance e.g. Delta Dunia, Eternity Investment
"[Activists] are like sharks: they’ve got to keep swimming. They stretch for targets, and you’re seeing that. But there is a place for them in America. All American businesses are not being run in the interest of their shareholders with really capable management. When that happens, change is needed." - Warren Buffett
https://www.globalxfunds.com/funds/actx/
Joel Greenblatt's magic formula:
https://en.wikipedia.org/wiki/Magic_f...
https://www.youtube.com/watch?v=1r1vJ...
Think of a matrix with stocks as being undervalued (columns 1,4,7) or overvalued (columns 3,6,9), and they are high quality (rows 1,2,3) or low quality (7,9,9)
1 2 3
4 5 6
7 8 9
Warren Bufffett vs Carl Icahn
Investment matrix sweet spot: Invests in 1 & 2 (great companies that are undervalued or at fair value) vs invests in 7 (deep value situations).
Philosophy: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." - Warren Buffett
"My whole history if you look at it, is not to buy businesses that are great. I don't pay retail. I go in when people say they're terrible. It's really the old Graham-and-Dodd philosophy. You go in when nobody likes it, but it's still ok." - Carl Icahn
Betting that excellent companies continue to be excellent vs betting on mean reversion e.g. companies mentioned in Tom Peters "In Search of Excellence" no longer became excellent the decade after he wrote the book.
Catalysts - the activist playbook:
1. Undervaluation
2. Operational inefficiency (3G's specialty: zero based budgeting)
3. Low payout policy and overcapitalization
4. Excess diversification
5. Independence, M&A
6. Poor governance
7. Undercapitalization
Time frame: favourite holding period is forever vs 2-3 years
"Time is a friend of the wonderful company, the enemy of the mediocre." - Warren Buffett
Risks: "Any investment strategy that is based upon buying well-run, good companies and expecting the growth in earnings in these companies to carry prices higher is dangerous, since it ignores the possibility that the current price of the company already reflects the quality of the management and the firm. If the current price is right (and the market is paying a premium for quality), the biggest danger is that the firm loses its luster over time, and that the premium paid will dissipate. If the market is exaggerating the value of the firm, this strategy can lead to poor returns even if the firm delivers its expected growth. It is only when markets under estimate the value of firm quality that this strategy stands a chance of making excess returns." - Aswath Damodaran
https://greenbackd.com/tag/aswath-dam...
e.g. Sun Art @ HK$12.64 in 2013; Hang Lung Properties @ HK$37 in 2007; Coca Cola @ $42 in 1998, Nifty Fifties
vs
Value traps (hence need activist catalyst); fraud e.g. Snowbird, Saxon Industries; poor corporate governance e.g. Delta Dunia, Eternity Investment
"[Activists] are like sharks: they’ve got to keep swimming. They stretch for targets, and you’re seeing that. But there is a place for them in America. All American businesses are not being run in the interest of their shareholders with really capable management. When that happens, change is needed." - Warren Buffett
https://www.globalxfunds.com/funds/actx/
Joel Greenblatt's magic formula:
https://en.wikipedia.org/wiki/Magic_f...
This entire review has been hidden because of spoilers.
February 13, 2017
Note to self: Activist investors takeover failing businesses with bad management to change the course and hope to yield high returns.
December 5, 2017
THE REALLY BIG MONEY TENDS TO BE MADE BY INVESTORS WHO ARE RIGHT ON QUALITATIVE DECISION BUT THE MORE SURE MONEY TENDS TO BE MADE ON THE OBVIOUS QUANTITATIVE DECISIONS.
Losing stocks - those in crisis, with apparently failing businesses, and uncertain futures - offer unusually favourable investment prospects - deep value investing.
From 1983 to 2008 the net net strategy returned 35% pa versus 13% for the market.
Apple was a net net in 2002 at $2.5b market cap - $7 per share versus $7.80 cash. In 2012 it was $700 per share.
Munger believed Graham was too conservative, that he saw the future more fraught with hazard than ripe with opportunity.
Over 17 years from 1988 to 2004 portfolios of 30 stocks with the best combination of earnings yield (EBIT/EV) and ROC returned 31% pa vs 12% pa for the market.
Buffett - a high PE ratio is no way inconsistent with a value purchase.
Losing stocks - those in crisis, with apparently failing businesses, and uncertain futures - offer unusually favourable investment prospects - deep value investing.
From 1983 to 2008 the net net strategy returned 35% pa versus 13% for the market.
Apple was a net net in 2002 at $2.5b market cap - $7 per share versus $7.80 cash. In 2012 it was $700 per share.
Munger believed Graham was too conservative, that he saw the future more fraught with hazard than ripe with opportunity.
Over 17 years from 1988 to 2004 portfolios of 30 stocks with the best combination of earnings yield (EBIT/EV) and ROC returned 31% pa vs 12% pa for the market.
Buffett - a high PE ratio is no way inconsistent with a value purchase.
September 16, 2016
Third book I read in the last 10 days. The first was King of Capital which was about the birth and rise of Private Equity (with some special emphasis on Blackstone). The second was Capital Returns a book written by compiling investor letters that Marathon Asset Management sent to its clients. The third is this book which mostly piqued my interest as I was looking for books on distressed equities. I would rate all 3 books as 5 stars for the wealth of information and new and unique perspectives. Read together, they also give a very comprehensive picture of business cycles, bottom up stock analysis and how to make money from both quality companies (the franchises as Buffett puts them) and deeply undervalued stocks (LBO, Hostile takeovers, Private Equity and other forms of activism or simply buying a diversified portfolio of such companies).
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