Quantitative Value Lecture in NYC, Announcements for DEEP VALUE

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I am temporarily using this email (jac007csi@gmail so check your spam filters) until I have my bulk email issues sorted out with AOL.com.  If YOU enrolled in the course and did not receive the email mentioned below, then email me at Aldridge56@aol.com and request the course materials for lesson 1.

I sent this book out before so delete if you have it. For those newly enrolled, please place in your research library. Not required reading.   Enrollment is NOW closed!

Attached is a book, M of Safety by Seth Klarman.  Over this course, I will be sending out other books/cases/notes and then asking for volunteers to do more in-depth research on the book, then we will share with the other students.  For example, I ask for one volunteer to critique that book.  Why is it a classic (on Amazon for $2,000) and what lessons for the investor? Is it similar to The Intelligent Investor?  You may wish to wait before volunteering because I will be sending out other projects by early next week and then you may choose a subject/topic of greater interest.

After reviewing Lesson 1 by Friday, we will watch a deep value investor/activist in action. Then for the advanced students, they can advise a company through a case study.  Then we will move onto liquidation values and Net/Nets.  We will circle back later (with the help of a volunteer) to further analyze Behavioral Portfolio Management (a reading from lesson 1).   Does investing in stock with NEGATIVE net worth makes sense?

There are 450 students enrolled. If only 10% volunteer for the twenty or so “special projects” then up to two people will be adequate.

Please consider DROPPING OUT if you are not a fanatic, Phanatic 

NOTICE: I can’t go, but can you or someone you know wish to attend?

Wesley Gray, co author of Quantitative Value Lecture on Wed. Jan. 7th at NYSSA in New York City

Date
Wednesday, January 7, 2015

Time
6:00 p.m.-7:30 p.m. | Presentation

7:30 p.m.-8:00 p.m. | Networking

Location
NYSSA Conference Center
1540 Broadway, Suite 1010, (entrance on 45th Street)
New York, NY 10036

Fees
Member $20     Nonmember $40     Student Member $15
($10 surcharge for walk-ins)

Registration Deadline

Wednesday, January 7, 2015

Credits
CFA CEs= 1.5

Speaker
Wesley R. Gray, Ph.D.

Chairs
Janet Mangano
Chris Goulakos
Michael Livian, CFA

Additional Information
If you are unable to register for this event online, please call (212) 541-4530 for assistance.

Register via Mail/Fax 
Policies and Procedures

7 responses to “Quantitative Value Lecture in NYC, Announcements for DEEP VALUE

  1. I’ve read Margin of Safety a few years back but its definitely worth a re-read. There seem to be two different types of safety as described by Graham originally. 1) Discount to Intrinsic Value as measured by present value of the future “earnings power” of the security. 2) A discount to net current asset value, “net-“nets”.

    The question regarding negative net worth is interesting, and counterintuitive. If net worth is the Enterprise Value defined as EV = Market Cap + Debt – Cash & Equivalents then you could see how a negative net worth enterprise could indeed be a valuable investment. If you screen for negative EV you can find companies loaded with cash on their balance sheet, which could provide a margin of safety.

  2. The negative net worth question brings Professor Bakshi’s presentation on float and moats to mind:

    https://fundooprofessor.wordpress.com/2012/12/06/httpsdl-dropbox-comu28494399blog%20linksfloats_and_moats-pdf/

    The fact that a company has a negative net worth could be seen as a competitive advantage as it may, in some cases, be a form of float.

  3. I might be wrong, but doesn’t negative net worth usually mean negative market value of equity? I.e. the value break is such that shareholders, being the residual claimants, are likely to be wiped out in a restructuring and only debtholders are likely to get some money paid back? In this case buying equity in the firm is most likely an unreasonable investment as in restructurings equity holders almost never get paid. There are counterexamples, of course, the most recent being the lucrative restructuring-turned-merger of American Airlines and US Airways, where even equityholders of AAL got some money. But this is a very rare situation.

    On the other hand, if Enterprise Value is negative, there might indeed be a good opportunity to invest (in case the reason for this is a large pile of non-operating cash on the BS). Do you know any specific recent examples of such situations?

  4. Not negative market value of equity, but rather negative book value of equity. For a company in liquidation, negative net worth would be a bad thing as the shareholders would be left without anything. However, as a going concern, negative net worth could, not always, but could have significant value. AutoZone is a company that comes to mind. The economics of the business are such that it doesn’t need to retain much capital for growth. This has allowed the company to return its earnings to the shareholders through buybacks, which decreases retained earnings and book value/net worth. However, they also extend the payment terms of their suppliers, which results in a significant amount of accounts payable. All total the company can use the credit from their suppliers and some borrowing power to grow and return money to shareholders, resulting in a negative net worth…. but significant value creation for the shareholders. If it were to be liquidated it would be an issue; however, as a going concern some of those liabilities act as an interest free or very low interest loan that creates value.

    Mr. Chew – I’m not an expert by any means so if I’m off base in my understanding of the potential value of a negative net worth company – specifically AutoZone – please do correct me.

  5. John, I could volunteer to this project. Klarman is one of my favorites and I am sure re-reading the book would be very valuable to me!

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