Tag Archives: Liquidations

Liquidation Valuation (Ch. 2 Deep Value)

Time-out: How to Think and How to read a book        Worth reviewing.

As a supplement to Chapter 2, Contrarians at the Gate in DEEP VALUE, please read the highlighted paragraphs on liquidation value in Seth Klarman’s chapter on Valuation (Chapter 8 in Margin of Safety and emailed to the Deep Value Group at Google).

You will understand

  1. how wide the range of valuations can become
  2. how uncertain valuation is.

Therefore, a value investor passes on what he or she can’t understand or uses CONSERVATIVE assumptions to build-in a margin of safety.

Take your time and read the above chapter carefully, especially his case study on Esco Electronics.  He makes a compelling case. The difference between price and intrinsic value (determined several ways) is ASTOUNDING.  A great investment should slap you in the face–it should be obvious, but then you might say what am I missing? You can’t believe the opportunity.

To reveal one of the secrets of this course (shh..) by the time we have journeyed through the readings, examples, videos, and cases, you will realize that if you are buying assets like net/nets, then you must buy them VERY cheaply to allow REVERSION to the MEAN to work.

Or if you go the Munger/Buffett (in his later years) route and buy franchises with moats around them (the companies have high returns on invested capital and they either grow profitability or return excess cash to shareholders) those companies are RARELY on sale.  The franchise moat (barrier to entry) slows the reversion to the mean process while high profitability allows for compounding of capital–an investor’s nirvana.

Great investments are FEW and FAR BETWEEN unless markets are in a huge dislocation.  Keep waiting and waiting until the money is just lying there for you to safely pick it up.  In other words wait for:


Can any pretty women taking this course teach the others:say no

Certainly we need to do better than this:

I will be posting a lesson index shortly.   We will tackle Chapter 1, The Paradox of Dumb Money, of Quantitative Value next before we move back to Chapter 3 in Deep Value and read Buffett’s Partnership letters (to be posted).

Chicken Liquidation CAGLE’S INC -CL A(CAGAQ) /Good Reading

This company has just received a bid post-petition (bankruptcy) and the equity shareholders look to receive $3.70 to over $4.00.  The risk is in how many weeks until you receive money for your shares in cash. This is only appropriate for small investors since liquidity is limited. You might be able to make some coin on a small investment but please do your own work.  Remember the chickens could fly away.

Practice reading court documents

Click through the links in this paper: Chicken Bankruptcy. Note how the price moved up before the announcement because of investors considering the odds of a higher bid being offered.

To learn you should read the court document (second link) in the paper and read the balance sheet, then see if you agree with the analysis.   Note the importance of incentives (who owns the majority of the equity). Always be sure that you are in alignment with the owners or people with a stake in the outcome of the auction.   The auction price has already been announced so the risk is in time to completion.

For making you read about chickens I will be awarding this prize:

Value Insight and you should read:TAVF_2Q_2012 Letter

Bernanke Under Duress

Sources have confirmed that President Obama’s Secret Service Specialists are torturing Bernanke until he agrees to crank up QE_More. Gruesome scene:http://www.youtube.com/watch?v=CSe38dzJYkY

If Hitler ran for office in England


QUIZ. Good Learning Resources: Net Nets, Liquidations and Special Situations

Net/Nets, Liquidations and Special Situations

I have a large library on special situation investing and eventually all will be posted or in the value vault. However………

The near-term focus of this blog will be strategic logic and valuation, but I want  investors who are starting their journey to have access to resources for asset-based (non-franchise) investing.

You can learn how to invest just as if you were analyzing a company. Start with the balance sheet and work down from simple to complex.  Cash is a more solid asset than a tax asset, for example.

But as you read the following resources always be thinking as a business person. Ask what is the economic reality of this asset or liability.


Can YOU name a fixed asset on a balance sheet that really is economically the same as a current asset, almost as liquid as cash?  Conversely, can you name a situation where a current asset is less liquid than a typical fixed asset?   Hint: Marty Whitman of Third Avenue Value Fund has preached this lesson often. (see links below).

Please take no more than 20 seconds to answer the first question. Prize: A tip from Jim Cramer on CNBC. C’mon, you can’t expect to win much on such a simple quiz!

This document has several excerpts from Graham, Klarman and Whitman on liquidation values.  A good primer on liquidation analysis.


If you are going to pursue asset-based investing then you need to study Marty Whitman. Read his first book (not a breezy read, though)


And his shareholder letters: http://www.thirdavenuefunds.com/ta/shareholder-letters-mf.asp

If you are a shareholder or a student you can call his office and ask for his book of shareholder letters: 1990 to 2005.  Highly recommended.

Marty Whitman on value and corporate governance

You can learn from blogs that focus on this type of investing.

My favorites: www.greenbackd.com (excellent. If you read all his posts and analyze past investment ideas you will have a solid grounding in net/nets.)

For podcasts on investing and net/nets from a self-taught investor: www.gannononinvesting.com

Also: http://www.manualofideas.com/blog/



Another good overall resource:


A reader kindly offered to share his resources here: http://motiwalacapital.com/blog/

And he suggested viewing these videos and materials: http://www.bengrahaminvesting.ca/resources/videos.htm

You are on your way………….