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Archive for January, 2014

Review: The Manual of Ideas By John Mihaljevic is “a worthwhile addition to any value investor’s library.”

Posted in Strategy, Value Investment on January 28, 2014| 2 Comments »

MoI Cover

John Mihaljevic’s The Manual of Ideas: The Proven Framework For Finding The Best Value Investments builds on his and his brother Oliver’s wonderful work with the Manual of Ideas newsletter.

The book is a  comprehensive assay of value investment theories, accompanying methods for identifying undervalued stocks, and practical considerations in the application of each strategy. John covers the following value investment methods:

  • Benjamin Graham’s “cigar butt” rule;
  • the sum-of-the-parts analysis;
  • Joel Greenblatt’s “Magic Formula”;
  • small cap stocks;
  • special situations;
  • equity stubs; and
  • international stocks.

John also suggests following great managers, and using the portfolios of “superinvestors” as a source of ideas.

The book is set out in logical, easy-to-follow format, and it is a worthwhile addition to any value investor’s library. It will be most useful to intermediate-level value investors who have developed an appreciation for the art, but not yet settled on a style. For my part, I am an advocate for “deep value,” which John limits to Grahamite net nets and subliquidation stocks, but which I define more broadly. (My definition covers most of the methods John highlights excluding Greenblatt’s “Magic Formula” for the reasons I have discussed in several posts including How to beat The Little Book That Beats The Market: An analysis of the Magic Formula and How to beat The Little Book That Beats The Market: Redux.) I highly recommend it.

Buy John Mihaljevic’s The Manual of Ideas: The Proven Framework For Finding The Best Value Investments.

Disclosure: I was provided with a free copy of the book for review, and I am quoted in it. I receive a small commission for books purchased on Amazon through this site.

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“Lose as little money as possible.”

Posted in About, Behavioral economics, Contrarian investment on January 20, 2014| 2 Comments »

Jason Zweig has a great blog post about Dean LeBaron, founder of Batterymarch Financial Management, and pioneer of quantitative investing: the use of statistical analyses rather than human judgment to pick stocks. Batterymarch’s Dean Williams delivered the incredible “Trying Too Hard” speech from 1981, which is required reading if you’re interested in behavioral investment:

I had just completed what I thought was some fancy footwork involving buying and selling a long list of stocks. The oldest member of Morgan’s trust committee looked down the list and said, “Do you think you might be trying too hard?” A the time I thought, “Who ever heard of trying too hard?” Well, over the years I’ve changed my mind about that. Tonight I’m going to ask you to entertain some ideas whose theme is this: We probably are trying too hard at what we do. More than that, no matter how hard we try, we may not be as important to the results as we’d like to think we are.

LeBaron, 80 years old, spoke to Zweig from his home near Sarasota, Fla. He believes that the name of the game for investors has been to make as much money as possible, but from now on, the prime directive will be to “lose as little money as possible.” 

If we are in a transition period, then the person who is in the most danger is the one who has recently done well, because he’s done well on things that are about to change.

…

In complex systems, the dynamics are predictable but the timing isn’t. It’s like adding a grain of sand one at a time to a pile: You can’t tell when it will collapse, but you know it will.

The highlight for me is this story about one of Mr. LeBaron’s most successful techniques at Batterymarch. Every year he ran a contest to see who could pick the stocks that would perform worst–not best–over the next year. Mr. LeBaron then went out and bought them all–more than 100 at a time–believing that if you can hold on for several years:

You should make enough on the ones that don’t go bankrupt to make up for the ones that do.

…

It’s harder than it sounds.

Read Jason Zweig’s blog post about Dean LeBaron.

Order Quantitative Value from Wiley Finance, Amazon, or Barnes and Noble.

Click here if you’d like to read more on Quantitative Value, or connect with me on LinkedIn.

 

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