Course Review/Index to Date

Revolutionaries

Course Review

Our goals in this course are to learn about investing, especially deep value investing through the book, DEEP VALUE  by Toby Carlisle and supplemented by Quantitative Value by Toby Carlisle.  Also, many original source readings will be provided to clarify and deepen our understanding of the primary readings. Also, we wish to be skeptical, independent thinkers who prove to ourselves what works and makes sense.   We will be open to disconfirming evidence.  We will question and help each other learn.

Below are the links in chronological order. The REQUIRED readings are in BOLD. Everything else is supplementary, but I hope you dig even deeper into the concepts and ideas.

  1. Toby Carlisle talk on DEEP VALUE Investing at Google (This was a preview/introduction to the course)
  2. Introduction to the course and book DEEP VALUE
  3. Lesson 1 Read PREFACE in Deep Value, Margin of Safety chapter in Intelligent Investor, Mr. Market and Behavioral Investing The first REQUIRED readings (Preface in Deep Value book (required), then supplemented by the other three readings.
  4. Lesson 1 Emergency Crash Landing The purpose of this post was to show the element of character, temperament, and training to maintain a process in the face of extreme stress. Investing is more about discipline and character to stay with the right process than IQ.
  5. Announcement that Margin of Safety by Klarman was emailed to participants
  6. Announcement that Value Investing by Montier was sent out as a supplement reading
  7. Rodney Dangerfield Video about Questioning Traditional Concepts, Deep Value Author Lectures
  8. Review of readings, a video of a deep value and activist investor valuing a company and an activist in action from Other People’s Money Munsingwear Case Study provided to test students’ ability to approach a business problem.
  9. An example of paying a huge premium for net asset value or What NOT to do as an investor
  10. Major Reading Assignments, Chapter 2 in DEEP VALUE book, Graham and Net/nets, liquidation value The institutional imperative was introduced. As deep value investors we feast on the errors of others due to cognitive biases or the institutional imperative (We can’t hold this poor performing stock because what would the client think?) I emailed out the books Security Analysis and Intelligent Investor to all in the course.
  11. Hannibal Lecter lecture on how to do the readings-Simplicity Try to focus on the main points and how you can apply them. Humor 
  12. How to join Deep-Value group at Google I ask enrollees to join to make communication easier.
  13. Videos on search and Net/Net Investing. This post supplements your reading in Chapter 2, DEEP VALUE
  14. Munsingwear Case Study Analysis See #8 above.
  15. Supplementary Original Source Documents for Chapter 2 DEEP VALUE See #10 above. Net/Net research and Graham’s testimony to Congress, Liquidation of American Businesses in 1932—Are Companies Worth More Dead Than Alive by Graham.
  16. httpAnalysis of Liquidation Valuation from Klarman’s Margin of Safety book in Chapter 8 (Valuation) Supplement to Chapter 2 in DEEP VALUE
  17. Supplementary Readings: Buffett Partnership Letters and King Icahn emailed. Next reading assignment will be Chapter 3 in Deep Value book.

OK, so after the chaos of postings and all the videos, you SHOULD have read:

The Preface and Chapter 2 in Deep Value by Tobias Carlisle (primarily supplemented by Chapters 1 & 2 in Quantitative Value).  That’s it! All the other material is simply if you wish to go further or want greater understanding and reinforcement.  For example, a student asked me what cost of capital would I use to discount the royalty earnings in the Munsingwear case study.  If you dug into Margin of Safety by Seth Klarman, he would say to use your required rate of return.  Try to find the answers from the investing greats and then determine if it makes sense to you.  You should answer for yourself whether the returns to net/nets are due to higher risk or behavioral biases of other investors. Pose questions in the comment section of the blog if you have thoughts or other ideas.

You should after those readings have an understanding of why net/net investing generates superior performance. The returns are generated by the behavioral flaws of other investors. We should understand the concepts of Mr. Market and Margin of Safety.  Investing is simple but not easy. Often temperament trumps IQ.

Next to read will be Chapter 3 in Deep Value. 

There will be a review of the readings in another post. Our goal is to move DEEPLY and slowly through the readings. If you will notice all the other supplementary readings like Seth Klarman’s Margin of Safety, the Intelligent Investor, the SSRN research are from the footnotes of DEEP VALUE or Quantitative Value.

At the end of the week I will send out a zipped folder containing the books and materials collected for this course.  Relax and don’t panic if you don’t have a book. I will email the folder to everyone in the Deep-Value group at Google.

I am sorry for the confusion, and I will strive to clarify.

 

7 responses to “Course Review/Index to Date

  1. Thanks John. I’m sure we all appreciate your efforts. I think Deep Value has many important things to say.

    I’m reading through King Icahn, too, and have finished chapter 2. So far, I haven’t found anything that I think we can actually “use”, but we’ll see. Perhaps the only thing I’ve taken away so far is that Icahn didn’t really have an understanding of the underlying businesses; but he had a “partner” (underling?) who was able to spot some gem.

    Whilst we’re on the subject of Icahn … I see that Icahn’s investment vehicle, IEP (Icahn Enterprise LP) has been having rights issues lately. The share count is increasing. IEP has a market cap of 11313m, and equity of 6159m, i.e. a significant premium (almost twice) to book. If you go back to Feb 2013, Kilinger (http://is.gd/z0VXM1) reported that it had a 17% discount to book value.

    IMO, what we’re seeing here are investors not doing what they’re supposed to … namely buying below book, and selling at a premium. We have to remember that Icahn is an excellent value investor. He’s not some corporate type who follow the management fad du jour about “growth”, “focus”, or whatever. So if Icahn is /selling/ shares in the company via a rights issue, and it is nearly twice book, then that really tells you all you need to know about whether IEP is a buy or a sell.

    Sometimes, investing isn’t hard. You just need the opportunities.

  2. Thanks for the post. We are not quite ready to read Icahn yet since we want to cover acquisition multiples, but it never hurts to read as you wish.

    Yes, I clear sign of over-valuation in IEP. I used to own it a while back. And yes, opportunities are few and far between. The master of using the public stock market was Henry Singleton of Teledyne. He would buy-in when company stock was cheap and sell when expensive.

  3. Thanks John,

    You really are doing way more than your share. We really appreciate your time and effort. This post has without a doubt, made everything as clear as water.

    The group has been an invaluable source of motivation and resources. I hope to be able to read as much as I can and practice what I learn in case studies. It is so difficult to read these texts on your own, but it becomes so much easier when I know so many other people are reading the same stuff and then we have all the nice little stuff you post to make us reflect on what we have learned.

  4. Thank you john, really appreciate your time and effort helping us learn

    “The greater the margin of safety—calculated as the discount from
    intrinsic value—the lesser the risk of permanent impairment of capital, and
    the greater the possibility for return. This dual principle—lower risk equates
    to greater return—is axiomatic to value investment, but an impossibility
    under orthodox finance theory.”

    This is not new but so easy to forget as I made the mistake most of my life with the notion that higher risk equates higher returns.

    Thinking about reversion to mean, could it be just the capital flowing from businesses where the returns are decreasing (heavier competition due to previously good returns) to businesses where returns are increasing (lower competition due to previously bad returns).

    • Reversion to the mean, I believe, reflects the basic law of supply and demand. Depending upon the industry, reversion can take several years. Capital flows in chasing higher returns, prices rise, credit to companies in that industry increase supported by rising assets prices–the reflexive cycle continues until the production structure becomes distorted. Over-investment brings over supply (mal-investment). Then the cycle tops and declines. It takes time for the mal-investment is cleared out.

      Capital begins to leave the industry. Eventually, the strong are left, the weak in the industry are culled, then under investment brings price below value. You are seeing some of this in the gold mining industry now.

  5. Thanks a lot for putting together this fabulous course and guiding people like me.

    I’m new to investing some of the things in this course makes sense to me and some pass over my head, As a person who is new to this idea, how should I approach this course.

    • Read the Intelligent Investor (in the course materials). Get an understanding of the attitude and approach.

      Then pick a business you like and order the annual report and try to understand how the business makes money. If you don’t understand the balance sheet, get an accounting text book, take a course online.

      Or go to a small business in your town that you frequent and talk to the owner. What price would he sell you the business and why that price.

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