Download PDF Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations (Wiley Finance)
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Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations (Wiley Finance)
Download PDF Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations (Wiley Finance)
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Review
"If You're A Pro On Wall Street Just Shut Up And Read This Book.""Here's your book for the fall if you're on global Wall Street. It's an incredibly smart, dense, 213 pages. It's your Autumn smart read."-Bloomberg's Tom Keene
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From the Inside Flap
Deep Value offers investors an authoritative exploration of the philosophy of deep value investment. Written by Tobias Carlisle—an active value investor and the well-known blogger at greenbackd.com—this important resource describes the evolution of the various theories of intrinsic value and activist investment from Benjamin Graham to Warren Buffett to Carl Icahn and beyond. Filled with engaging anecdotes and meticulous research, the book illustrates the principles and strategies of deep value investing and examines the counterintuitive idea behind its extraordinary performance. Deep Value is a practical guide that reveals little-known valuation metrics that activist investors and other contrarians use to identify attractive, asymmetric investment opportunities with limited downside and enormous upside. Tobias Carlisle presents an insider’s perspective on valuation and activism in a format that is accessible to both professional and general investors. The value investment philosophy as first described by Benjamin Graham initially identified targets by their discount to liquidation value. This approach has proven extremely effective; however, those opportunities have all but disappeared from the modern stock market. To succeed, today’s deep value investors have adapted Graham’s philosophy, embracing its spirit while pushing beyond its confines. In Deep Value, Carlisle examines Graham’s 80-year-old intellectual legacy using modern statistical techniques to offer a penetrating and highly original perspective: that losing stocks—those in crisis with apparently failing businesses and uncertain futures—offer unusually favorable investment prospects. As the author demonstrates, the evidence reveals an axiomatic truth about investing: investors aren’t rewarded for picking winners; they’re rewarded for uncovering mispricings. Deep Value shows the place to look for mispricings—in calamity, among the unloved, the ignored, the neglected, the shunned, and the feared.
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Product details
Series: Wiley Finance
Hardcover: 240 pages
Publisher: Wiley; 1 edition (August 18, 2014)
Language: English
ISBN-10: 1118747968
ISBN-13: 978-1118747964
Product Dimensions:
6.3 x 1.1 x 9.1 inches
Shipping Weight: 13.6 ounces (View shipping rates and policies)
Average Customer Review:
4.6 out of 5 stars
69 customer reviews
Amazon Best Sellers Rank:
#429,239 in Books (See Top 100 in Books)
Most investing books are essentially marketing material about how the author buys companies that are not only cheap, but also high-quality and low-risk. Oh and the company has growth potential too! And the chairman of the board isn't a man, he's a unicorn! It drives me crazy because I'm dying to learn something, and all these books do is say, "This is important, and so is this, this and this." The problem is: when you stress the importance of everything, you stress the importance of nothing.But Carlisle's book doesn't do any of that. Neither does his blog. Unlike most people writing about the subject of value investing, Carlisle prioritizes. He says in no uncertain terms that, for example, value beats growth and value beats quality, and then he presents the evidence. I may not agree 100% with every conclusion he draws, but at least he actually SAYS something. Which is wonderful because it gets you thinking and at its very best, it gets you to refine your thinking. That, I think, for most of us is half the joy of investing.As a long-time reader of Carlisle's blog Greenbackd, I saw his new book on the site and decided to give it a try. I wound up finishing it in a day. His previous book was about value investing in a systematic, quantitative way, a subject I find endlessly fascinating. This one focuses far more on the other side of the value investing spectrum: special situations. (Greenbackd readers will find there's a decent amount of backtesting and historical analysis in the book.)As someone who did special sits before getting into more quantitative value investing, I thought the chapters and Icahn, Graham and Buffett were riveting. It reminded me how much fun it can be to get into the guts of a company. It also reminded me how much value a good activist can create at a company with a board that's asleep at the switch. I also found it interesting when Carlisle was writing about Joel Greenblatt that Greenblatt may have possibly already been a closet quant in college, before he went into special situations investing and became one of its best practitioners ever.Towards the end, the book gets less into stories and more into quantitative considerations. There's some good discussion about whether quality adds much to a simple deep value approach, which is interesting because the idea that quality might not matter much defies "common sense."There are a lot of references to antiquity in the book, particularly to the ancient Greeks. Too many investing books seem like they were written by your accountant. I liked that this one was clearly written by someone who was having fun and who sees how investing is not just about making money, it's about capital finding value, something that counts for a heck of a lot in this world, whether you're a small business owner in Manila or the manager of a $6 billion hedge fund in New York. If that isn't at least in some small way wisdom, then I don't know what is.
This is an important, interesting, and entertaining book. The author chose a fascinating topic and did a great job describing the historical developments that influenced the evolution of activist investment strategies over time. The book is filled with information and historical facts, is well organized, well written, etc. Overall, a very enjoyable read. Something not easy to accomplish when it comes to finance books.Next, I would like to leave some personal remarks that I hope will help other readers diggest all the information contained in this book.1- Icahn and that first generation of activist investors had it good for some years. I think it would be impossible today to find companies that trade below their liquidation values. Besides, a lot of progress has been made in the last few decades regarding corporate governance and the alignment of incentives between managers and stockholders.2- Early activist investors used to behave more like speculators than investors. Grant it, they did get involved with the company and fought tough corporate battles against corrupt boards and bureaucratic management. However, they did so with the sole purpose of taking a quick, rather straightforward profit. The situation is much different today. Almost 10 years into the current bull market, with principal-agent incentives aligned, and an overall more efficient financial market, present-day activist investors are almost forced to get a longer term involvement with the company and help it improve its business and operations.3- The acquirer’s multiple strategy described by the author resembles more trading than investing. In my opinion, it is too systematic and too short termed (annual rebalancing) to be considered “investingâ€. Nothing wrong with it, but I think people need to start calling things for what they are. I would even go as far as to say that traditional Value Investing (stemming from Graham's teachings) has more of trading than investing. I mean the "arbitrage" branch of trading, not the "market timing" one. In fact, the author himself likens value investing to option arbitrage trading in one of the early chapters. Any stock picking strategy that attempts to screen thousands of stocks based on a few ratios is playing an statistical game. In this case, the bet is that most of the deep value stocks chosen by this screen will end up reverting to the mean, catching up with their intrinsic value (however that was defined by the analyst). The overall strategy seems to be based on solid concepts and empirical evidence. However, there are at least 3 things that concern me. First, it's not the same thing to buy a company at a price below its liquidation value than to choose stocks based on valuation metrics that indicate that the stock is trading below their intrinsic value. Intrinsic Value is not the same as Liquidation Value. It's one thing to buy a company, liquidate it, and take a sure profit. It's a whole different story to buy a stock at a market price below its estimated intrinsic value and then hope that the market eventually validates that valuation. Second, intrinsic value is not an objective measure. It is subject to the analyst's opinion. In this case, the author uses EBIT/EV as the best estimator of a company's intrinsic value. He presents solid empirical evidence to support his choice and I've seen other authors picking the same metric. However, the process by which this metric is selected is again statistical. It worked most of the times for the time period under analysis. It also worked better than other metrics proposed. This does not mean it will work forever and under any circumstances. Different market scenarios may favor the use of different ratios. Given the nature of these deep value strategies, you can expect all of them to perform well after a prolonged bear market -when there are many more "bargains" available. In such an environment, the choice of the specific valuation method may be less relevant than just "seizing the moment". Finally, there might be an easier way to do all this. In the end, this is just another long equity, short volatility strategy. Does it beat the S&P 500? Apparently, it does. What's its correlation to the overall equity market? Probably, very high. So, even when this strategy may have an edge, if you build your deep value portfolio at the peak of a bull market, you're probably going to lose a lot when the market starts correcting. Again, this is because you're still 100% long equities. What if instead you combined it with other assets that are not correlated to equities like treasuries, gold, or other commodities? Nowadays, you can easily buy ETFs on many different asset classes, which allows building up portfolios with exposure to different risk factors. The best part is that this strategy is really easy to implement and maintain! I would like to see how this Deep Value strategy fares versus a diversified passive portfolio containing equities, treasuries, and gold (using let's say a 75/20/5 allocation policy). This is so easy to implement that you may even want use the extra time to perfect this strategy. For example, you could use Value Investing principles to guide the process by which you could adjust your factor exposure more dynamically, based on market conditions. In this case, you may even still find yourself dedicating less time to this strategy than to a deep value, stock screening one. This is the direction in which the asset management industry is moving. ETFs and passive exposure are killing the active management industry. Stock picking funds will eventually disappear.4- I think the author's dismissal of quality stocks is based on an incorrect analysis. First of all, quality business are those that consistently generate high ROICs, not just during last year. Ranking stocks by last year’s ROIC does not necessarily render quality business at the top. As the author states, companies’ fundamentals are mean reverting. However, that’s the case for mediocre business, not quality ones. The author should have used some measure of high ROIC sustained throughout at least 3 years to find quality. Secondly, the author resets his portfolio annually. Which means that most of his “quality†stocks will be replaced by new ones every year. Again, this arises from the fact that the author ranks his quality stocks using last year’s ROIC instead of the cumulative ROIC over time. The problem is that true high ROIC, quality companies need time (years) to compound returns and deliver stellar results. There's no way the author could have successfully tested the performance of quality stocks using the approach he uses. This is to a great extent due to the fact that quality stocks are not susceptible to the type of systematic trading the author seems to favor.Ok, after all this I feel like removing one star. However, 3 stars for a book like this seems too low. It's evident that the author did a lot of work and put a lot of effort to create this book. 3 stars would be unfair. This is a quality book (no pun intended) and it deserves 4 stars.Overall, a very good read. Just keep a critical mindset as the author presents his arguments/evidence.
This is a solid investing book that introduces readers to the deep value investing concept. There is one major caveat, however: don't think that you're going to read this book and all your investing dreams are going to suddenly come true. Unfortunately, investing (and life in general) doesn't work that way. You're just not going to get rich by reading a book. The concept is solid (value investing works!) but I would recommend focusing on the overall concept and then try to develop your own proprietary model or methodology based on the general value investing premise as espoused in this book. That's what I did with the value investing concept in the early 2000's and the relatively simple model that I came up with has been outstanding over the last 15+ years - crushing the market by a significant margin. Again, read this book and try to grasp what the author is saying, then develop your methodology. IMO, that's the only true way to realize significant alpha in this highly competitive and mostly efficient (and mostly computerized) stock market environment. Best of luck!
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