Greenbackd

The wonderful Miguel Barbosa of Simoleon Sense has interviewed Joe Calandro, Jr., author of Applied Value Investing. The interview is first class. Joe Calandro, Jr. is an interesting guy. Deep value? Check. Activist investing? He’s for it. Austrian School of Economics? Check. I think I just wet myself.

Here’s Joe’s take on value:

Q. Can you give me an example of some of your best investments?

A. In the book I profile a value pattern that I call “base case value” which is simply net asset value reconciling with the earnings power value. Firms exhibiting that pattern, which sell at reasonable margins of safety have proved highly profitable to me. In the book, I show examples of this type of investment.

…

“Value investing” in general has 3 core principles:

(1) The circle of competence, which essentially relates to an information advantage and holds that you will do better if you stick to what you know more about than others.

(2) The principle of conservatism. You will have greater faith in valuations if you prepare them conservatively.

(3) The margin of safety. You should only invest if there is a price-to-value gap: when the gap disappears you exit the position.

Here’s Joe on activist investing:

Q. You’re primarily in the corporate sector now; in your book you touch upon the failure of corporate M&A groups to apply value investing.  Why do you think this is the case? What is your take on activist value investors?

A. That’s a good question and I don’t have a definitive answer for it. My take on it is that Corporate America hasn’t been trained in Graham and Dodd. For example, if you get away from Columbia and some of the other top schools you really don’t have courses of study based on Graham and Dodd. I think this lack of education carries over to practice. If educational institutions aren’t teaching something, then executives are going to have a difficult time applying it. And if they do try to apply it, their employees and boards may not understand it. Hopefully, my book will help to rectify this over time.

Regarding activist investors, I think every investor should be active. If you allocate money to a security (either equity or debt) you have the responsibility of becoming involved in the respective firm because, as Benjamin Graham noted, you invested in a business, not in a piece of paper or a financial device. This is real money in real businesses so there is a responsibility that comes with investing.

And Joe’s view on economics:

Q. Can you give us a tour of the major insights you obtained from the Austrian School of Economics.

A. I have two big academic regrets: I did not study Graham and Dodd or Austrian economics until I was in my mid 30’s. One of the major theories of Austrian economics is its business cycle theory. Just the other day (11/6/2009), that theory was mentioned in the WSJ by Mark Spitznagel, who is Nassim Taleb’s partner, in his article “The Man Who Predicted the Depression.” As you know, Taleb has also spoken highly of Austrian economics as have other successful traders/practitioners such as Victor Sperandeo, Peter Schiff and Bill Bonner.

Austrian economics finds success with practitioners because, I think, Austrian economists are truly economists; they do not try to be applied mathematicians. Therefore, Austrians tend to see economics for what it is; namely, a discipline built around general principles that can be applied broadly to economic phenomena. As a result, Austrian economics is generally very useful in areas such as the business cycle and the consequences of government intervention, which are very pertinent topics today.

Read the rest of the interview while I run out to buy the book.