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Deep Value Course Materials (Updated)

cattle drive


Course Materials Have Been Updated Here:

Read chapter 3 in DEEP VALUE and Dempster Mills Case Study (Buffett)

Have a good weekend.   

Course Review/Index to Date


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.


DEEP VALUE Supplementary Readings for Ch. 2, Deep Value


Below are supplementary readings and original sources for Chapter 2, Contrarians at the Gate, in Deep Value. This is an important chapter because we are introduced to the father of security analysis. He was the first person to systematize his analysis and separate the price of a security from its intrinsic value.

I realize that some may find Graham fusty and his prose turgid/boring, but Graham was a Renaissance man who had a razor-sharp intellect and integrity.  You can’t lose by reading his works.  Note his attitude, skepticism, and logic.

So far in the course I am surprised by the ironies and subtleties of Deep Value investing–picked up in the preface of the book, Deep Value.  Our Deep Value Group has close to 400 members, yet, currently (Jan. 17, 2015), the number of net/nets in the US market is negligible.  Financial assets (with a few exceptions) are sky-high in valuation due to Central Bank intervention, negative interest rates, and a six-year upward trend in US bonds and stocks.  I am surprised at the interest.

We invest today for the future, but the future is unknowable. Look at the predictive record of experts!  Investors tend to extrapolate the past into the future just in time for a reversal of fortune–reversion to the mean reverses the trend.

Deep value investing takes advantages of the cognitive biases of others to gain profits, but if we are human too then how do we avoid the same?  Cheapness or the discount from intrinsic value is the main determinant of margin of safety. The cheaper you buy the less risk and MORE reward. This smashes academic finance theory in the face.

Here I am quite surprised that the highest returns to the net/net strategy go to the MONEY-LOSING companies. The worst of the ugly gain the most. Perhaps because price drops the most due to fear and earnings trend extrapolation.  Like assuming the driver of the car will continue to motor off the cliff instead of turning or stopping the car.

A TEST: Let’s say a company earned $5 per share and it is growing at 5% per year, the cost of capital is 10%, and it is trading at $85 per share. Then the next year earnings drop to $1 per share and the following year earnings drop to $0.05 or five cents, the next year earnings go up to $3 and in the fifth year back to $5.25 and 5% growth. After ten years the company will continue to grow but only at 3%.  Guess the price drop quickly and write it down.  Now do the DCF and see where the intrinsic value is compared to your guess.

Last year $5.00

Year 1 $5.25

Year 2: $1.00

Year 3: $0.05

Year 4: $3.00

Year 5: $5.25

Year 6: $5.51 (5% growth)

…. next year, next year, etc.

After year 10, then terminal value 10% cost of capital with 3% perpetual growth. Can a financial wizard post in the comments section?  Was anyone surprised by your initial reaction the Intrinsic value result vs. their initial thoughts on how price would react?

Back to the post….

The higher probability (Montier, 5%) for each INDIVIDUAL company to go down 90% or more vs. 2% of non net/nets may cause other investors to shy away from investing. HOWEVER, the GROUP of net/nets STILL outperforms.   You have certain companies go to zero and some rebound multiple times but you don’t know which ones.  You have to deal with much uncertainty but believe you are playing the odds like an insurance company.

When net/nets are abundant like in 1932, the world appears to be ending. Investor fear is off the charts. The question is whether you will have the capital to buy and the courage to act. Again we come round and round to temperament or character or whatever you want to call acting in the face massive fear.

But knowing that a company is too cheap when it trades at less than 2/3rds to net asset value (Asset value is tenuous, liabilities are 100 cents on the dollar) does not seem difficult, but probably the surrounding circumstances for the company and/or market are ugly! “Don’t you read the papers!” an outsider might say if he or she learned of your purchase.

Remember 2009? Jim Cramer in a panic.   (just paste into your browser)

Those are my thoughts and questions so far as I keep reading.

Graham’s Writings and Testimony

Graham Testimony to Congress (note his remarks on the MYSTERY of price eventually closing the gap with intrinsic value)

Important writings on Liquidation Values during the 1930s

1932_American Corporations Worth More Dead than Alive 3 Parts by B Grahams  (Please read). You can’t understand the depths of despair in the financial markets (and thus the net/nets and prices below liquidation values) without understanding the preceding boom.

Historical perspective

A Study of Market History through Graham Babson Buffett and Others  The 1920s BOOM.

A Great Depression_Rothbard Obviously, you don’t have time to read this, but IF you do want to understand the causes of the biggest bear market in US history then this is the definitive work.  The book destroys the common wisdom that the depression was caused by the Fed’s tight monetary policy.

The Outperformance of Net/Nets

Net NEt Strategy in London


Benjamin-Graham-s-Net-Nets-Seventy-Five-Years-Old-and-Outperforming  I imagine that some net/nets are micro/nano-cap stocks under 50 million in market cap and with wide (5% to 10% bid/offer spreads) perhaps the studies do not deduct the spread?

There is a lot here so I will refrain from posting until the middle of the week. Take your time with Chapter 2.   I will be posting next on Klarman’s thoughts on liquidation and valuation.

Traditional finance savaged: The Dumbest Ideas in Finance_Montier

 How NOT to take this course

You don’t have to read EVERYTHING, but you do have a choice. Better to understand what you read.

Thinking Differently (Money Ball); Munsingwear Analysis


I HIGHLY recommend you go see Money Ball or read the book by Michael Lewis.  A metaphor for deep value investing.

Case Study – Munsingwear Analysis Q&A

Who earned their wingtips?  That case was about approaching the problem as a business person.  First you had to notice the two businesses, then break them out. Stop the bleeding, then leave the rest.  Often, the smartest students struggle to resurrect the uncompetitive business. (Buffett at Berkshire Hathaway!)

Next, I will post some questions and supplementary readings for Chapter Two in DEEP VALUE (the book) over the weekend.

Enjoy your Weekend!

Hannibal Lecter on How to Read Ben Graham

What is its nature?


Read Marcus_Aurelius, First principles,    S I M P L I C I T Y.

For each particular, what is it in itself? What is its nature?  Why does he kill? Because he covets!

In your Readings for Lesson 3: Graham’s Liquidations and Net/Nets think about principles not accounting conventions.  When is a current asset not current? Can a fixed asset be more current than a current asset on the balance sheet?

Finally, when you are looking at a balance sheet, always think of this


Google only lets me send emails to 500 people in one day. There are 497 enrollees in the deep value course.   So I can only email by group. I will be sending out invites to all enrollees in DEEP VALUE

So consider joining or else you won’t receive emails. Email communication will typically be updated on the most recent blog post at

We already have volunteers for Schloss, Tweedy Browne, Greenblatt, and Buffett. Thanks for the quick response.  No more volunteers for now. But I DO need a volunteer to date My Ex-Wife.

All Course Materials Sent via Hightail Link to Your Email

Once again, if you did not receive this link in your email, let me know at because it means that you are not enrolled and not on the distribution list.

UPDATE 12:40 PM:  It looks like my aol emails are not getting through. I will be using instead to send you communications.   Use the link below instead of the email link I sent you IF you are asked for a password. Sorry. We are getting there. ALL course materials for now can be downloaded below.

from via Hightail.
Your file will expire on February 10, 2015 08:43 PST unless you Save to folders, then you will have online access anytime.
Save to Folders
If you Save to Folders you can use the Desktop App, Mobile App and iPad App to access your files from anywhere.



IMPORTANT: Email Distribution List for DEEP VALUE COURSE

I just sent SECURITY ANALYSIS (PDF) to EVERYONE (503 enrollees) on my distribution list for the DEEP VALUE COURSE under TWO emails: and

We have to have an efficient distribution list so you can get assignments/readings.    Perhaps, I should have used google drop box or some other method.   But I don’t see why emails can’t work.

SO, if you are ENROLLED in the course AND you did not receive TWO emails with Sec. Analysis attached, then email me AGAIN at with STILL NO SECURITY ANALYSIS.

Check your spam folders to let the emails through.

Once I know that the FULL distribution list is working I will RE-EMAIL all the materials that you should have to this point in the course.

Let’s get it right because receiving 250 emails from students who did NOT receive THE Intelligent Investor and Sec. Analysis is very time consuming.

THANKS, John Chew


Emergency and DEEP VALUE Investing (Lesson 1)

planeEmergency Inbound   Please JUST LISTEN (not watch) to the audio. Ignore the skill of the pilot.  What do you notice AS UNUSUAL?   How does this relate (if at all) to Deep Value Investing?

Emergency Inbound Simulation with Audio The two-minute video—please WATCH along with listening carefully to the Captain.

Full Simulation If you don’t grasp the situation (you are in a 50-ton aircraft that flies like a tank with wings once power is lost-the aircraft holds 155 passengers and several tons of fuel, you are over a DENSELY populated area.), watch that seven-minute video.  Thoughts about the Captain?  What was he thinking and doing? Any lessons here for us as investors?

Was he thinking about this? FEARLESS

Was his reaction similar to this? Here’s JOHNNY!

I used to be a pilot of small aircraft so I am biased. Is there any connection between how the pilot acted and investing? The situation and investing?   Was the pilot lucky?   Was the pilot a hero?  Would the pilot consider himself to be a hero?   Why don’t we give parades to mothers who don’t kill their children?

Take a break and go back to the first link.  Before listening again, think about what you would do as the pilot. How many decisions do you have to make and how much time do you have to decide?   What would you be fearful of? Why?   How should we handle fear?  Why are we the enemy?

Don’t hesitate to disagree, contradict or point out other questions.  Do you think that personality has a lot to do with how the person responds–the nature vs. nurture argument?   Buffett said that once you have over a 125 IQ then success is a function of temperament and character. Do you agree? What about this guy: Do You Love the Virgin Mary?.  Can you work around temperament? By the way, have you ever noticed any similar traits among Seth Klarman, Warren Buffett, Ben Graham, Walter Schloss?

One goal of this post is to reinforce the power of emotions in terms of your readings from lesson 1.



About 400 students from 40 different countries are enrolled.

I will cease to enroll after 1 pm today (Monday) New York City time.

Sorry, but time constraints rule.

Thanks for the interest and the journey begins.


Enrollment to Close Monday Jan. 5th

Deep value cover


Right now we have about 250 fanatics signed up.  As a skeptic, I wonder if there are really that many fanatics spread across the globe.  “Students” range from raw beginners to forty-year veterans with CFAs, MBAs, MAs, and dozens of letters after their names.   Students (men and women) are located in India (a lot!), Germany, France, Sweden, North Africa, South American, Canada, and Alaska.

The only requirement is to be skeptical. Try to prove/disprove what you read and hear–especially what you might think is true.  Can you apply concepts and principles to your own unique location/situation?

If you sent me an email as instructed by the prior post on this blog at, then you should have received the first lesson and two emails with attachments. If not, then email me again with the title DEEP VALUE.  If within twenty-four hours you haven’t received an email, then do it again, and I will make sure you receive the lesson.

I have to close the course because handling incoming students will be very cumbersome after the first class. For those too late to “register” then follow along with the blog since I will be posting questions on the readings.   There are no grades; the market will do that for you.