The “Dangers” of Deep Value Investing



2 responses to “The “Dangers” of Deep Value Investing

  1. Ah yes, Lonmin. I shared his pain.

    He talked about rescue rights issues. It was a subject I mentioned on your own blog, John, with respect to housebuilders a few years ago. The gist of which is: near cyclical lows some companies get themselves into messes and need a rescue right issue. The sector recovers, with the company in reasonable financial shape.

    So, the trick is to look for companies that are in this situation and have had a rights issue, then you should take a look. I said it about housebuilders back then, but I failed to heed my own advice last year. Lonmin is up 122% over the last year. Have you missed the boat? Well, Lonmin trades at a PBV of 0.27, which is usually regarded as “quite cheap”, to put it mildly. It has net cash of £138m against a market cap of £363m. It’s PE is 21 – which is actually quite encouraging, because you expect cyclical companies to be on high PEs in cyclic troughs.

    I don’t any, BTW. D’oh.

    I actually commented on their recovery fund last year. They had added a new position on ACHL (Asian Citrus), which I had identified as a fraud. They would have saved themselves some damage if they had steered clear of that one.

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