We scour the markets for underpriced stocks — There are many approaches to finding bargains in the stock market, but they all have one thing in common: the goal is to find businesses that are worth more than the market price of their stock suggests. We look for companies that exhibit a particularly large disparity between price and value, giving you a large margin of safety. The greater the latter, the lower the risk of permanent loss and the higher the likelihood of outperformance. In order to invest like Warren Buffett, one must abandon the notion that above-average return requires the assumption of above-average risk. While this may be true most of the time, there are situations in which risk is low and expected return is large — these are the situations we focus on in our research.

We have distilled the principles of value investing into a powerful funnel for investment ideas — Value-oriented investing trumps other types of investment because the search for value begins with the realization that a stock is not simply a piece of paper to be traded but, more importantly, a legal claim representing partial ownership in a real-life business. Stock prices may fluctuate without regard for underlying value in the short term, but they almost always converge to value in the long term. While some market participants believe they can consistently predict the short-term behavior of their fellow investors, we point out that some people also believe in astrology. Your capital should be invested on a more solid foundation—value investing.

We bring you the most compelling stock market investments by concentrating on the following areas of market inefficiency:

• Special situations — Companies in this category have undergone or are undergoing major corporate change, with prospective stock price performance driven more by company-specific events than the overall direction of the stock market. Inefficiencies arise in situations such as spinoffs, in which a large company may spin off a small division. Many shareholders of the large company may have little or no interest in owning a stake in the spinoff, creating selling pressure for reasons other than investment merit. Such selling can provide an attractive buying opportunity for investors willing to do the work of valuing the spinoff entity. Other special situations include companies under activist pressure to consider strategic alternatives; companies aggressively repurchasing their own stock, perhaps by leveraging the balance sheet; mergers and acquisitions; and reorganizations and liquidations. Practitioners frequently associated with this category include Bill Ackman, Joel Greenblatt, David Einhorn, Chris Hohn, Carl Icahn, Eddie Lampert, and Dan Loeb.
• Deep value stocks — Companies in this category are cheap based on trailing or forward earnings or, more commonly, based on the value of their tangible assets, including cash and investments, receivables, inventory, real estate, and buildings and machinery. Deep value opportunities are evaluated either on a going-concern basis or assuming liquidation of all assets. Numerous studies—most notably by Eugene Fama and Kenneth French—have shown that stocks trading at low multiples of tangible net assets outperform the broader market over time. Current and past investors frequently associated with this category include Ben Graham, Seth Klarman, Rich Pzena, Prem Watsa, and Marty Whitman.
• "Magic formula" stocks — Companies in this category rank highly on two metrics: operating income to enterprise value (i.e., "cheapness") and operating income to capital employed in running the business (i.e., "goodness"). According to Joel Greenblatt's The Little Book That Beats the Market, portfolios of stocks selected quantitatively based on "magic formula" criteria have handily outperformed the S&P 500 over the past couple of decades. For a curret list of companies, visit Joel Greenblatt's MFI website. Practitioners frequently associated with this category include Bruce Berkowitz, Brian Gaines, Glenn Greenberg, Joel Greenblatt, Steve Mandel, Mohnish Pabrai, Rich Pzena.
• Companies with no analyst coverage — While large-cap stocks often have a dozen or more Wall Street analysts following their every move, more than one-half of roughly 10,000 U.S. public companies have no analyst coverage. Obviously, such companies are unknown to most investors and are more prone to temporary mispricings. The latter can occur due to simple investor neglect, a large holder's sudden need to sell shares to meet other obligations, or for other non-fundamental reasons. We have developed various ways of tracking many of these companies, putting us in a position to alert you to drastic mispricings. Practitioners frequently associated with this category include Sardar Biglari, Ian Cumming & Joe Steinberg, Lloyd Miller, David Nierenberg, Bryant Riley, and Paul Sonkin.
• "Super investor" favorites — Whenever a super investor chooses to allocate capital to a specific company, we want to determine what might have triggered the investor's interest. Often, super investors unearth value that might be missed at first glance. By following their moves, we complement our other idea generation activities and ensure that you don't miss out on compelling opportunities, even if they were not originally sourced by us. To assist our research team in prioritizing our evaluation of companies owned by super investors, we have developed MOI Signal Rank, a proprietary ranking that seeks to determine which stocks a particular super investors likes most right now. MOI Signal Rank is provided to our subscribers quarterly as bonus content.

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