Each month, our team combs through equity markets utilizing a proprietary idea funnel to bring you a review of twenty pre-screened value investment ideas.
Authored by investment and finance professionals who have grown up on the teachings of Ben Graham, Warren Buffett and Joel Greenblatt, and have studied under luminaries such as Yale Chief Investment Officer David Swensen and Economics Nobel Laureate James Tobin, The Manual of Ideas delivers timely, differentiated investment ideas.
We have developed an idea funnel that utilizes quantitative and qualitative techniques to focus our research on companies meeting multiple criteria for outperformance. We analyze areas ripe for investor misperception and neglect. We then apply an analytical framework grounded in deep understanding of business economics, competitive dynamics and security analysis.
Companies in this category 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.
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, and real estate. 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, Bruce Berkowitz, Seth Klarman, Rich Pzena, Prem Watsa, and Marty Whitman.
Companies in this category rank highly on two metrics: operating income to enterprise value ("cheapness") and operating income to capital employed in the business ("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. Practitioners frequently associated with this category include Brian Gaines, Glenn Greenberg, Joel Greenblatt, Steve Mandel, Mohnish Pabrai, Rich Pzena.
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 and Joe Steinberg, Lloyd Miller, David Nierenberg, Bryant Riley, and Paul Sonkin.
Whenever a "superinvestor" chooses to allocate capital to a specific company, we want to determine what might have triggered the investor's interest. Often, superinvestors 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 superinvestors, we have developed MOI Signal Rank, a proprietary ranking methodology that seeks to determine which stocks a particular superinvestor likes most at this time. MOI Signal Rank is provided to our subscribers quarterly following the availability of 13F-HR filings. We regularly track the purchase and sale activity of more than 50 leading investment managers.
Value investment opportunities are not limited to any specific geography, though we have historically unearthed the most compelling opportunities in the U.S. and Canada. Our team is spread our globally, however, with a physical presence in London and Zurich, enabling us to look beyond North America in our search for compelling ideas. Some of our past monthly issues have focused exclusively on global opportunities, including those in Europe and Japan. While we do not limit our search geographically, we strong prefer countries with well-established corporate governance and legal systems.
Finding managers who put the interests of shareholders first is difficult but essential. We constantly look to add CEOs to our list of exceptional "jockeys". The owner-operators on our list include Warren Buffett of Berkshire Hathaway, Prem Watsa of Fairfax, Ian Cumming and Joe Steinberg of Leucadia, Jim Tisch of Loews, and John Malone of Liberty Media.
Free trial, no long-term contracts, pay-as-you-go.
The Manual of Ideas is yours for only $99/month.
Each month, we share key intelligence on twenty ideas in a clear, concise manner.
Form a high-level picture of a company's financial and stock market performance by reviewing key income statement, cash flow and balance sheet items.
See how a company's share count has changed over time, track returns on capital employed, and compare free cash flow to net income.
Review stock performance, consensus EPS estimates, valuation ratios, and "magic formula" criteria.
Ascertain each company's drivers of intrinsic value.
Learn about business model features, market position, competitive dynamics, balance sheet asset values, management's capital allocation decisions, and potential value-unlocking catalysts.
Rather than present information in a rigid template, we focus the analysis on the data points most likely to drive a company's value over time.
We present an unvarnished view of the downside risks for all companies, whether we ultimately judge them to be great investments or not.
When we think about the downside, we try to put ourselves in the shoes of informed short sellers. What is their argument, and could it be correct?
Our mindset is not to sell you on our ideas but rather to argue both sides as forcefully as we can — and to let the merits drive your decision.
Identify the key quantitative factors driving a company's performance and track them over a multi-year period.
Get a clear picture of company-specific drivers, which vary widely by sector and industry.
We think hard about which datasets to present — and in what order. The goal is to enable you to grasp the financial workings of a company as clearly as possible in a matter of minutes.
Ever wonder how a CEO or CFO's salary, bonus or total compensation compares to the equity the CEO or CFO owns in a company?
We show a simple yet powerful metric for three different measures of compensation: the number of years it would take for compensation to equal the market value of an executive's stock holdings.
Quickly gauge the ownership of a company by insiders, top shareholders as well as the 50+ superinvestors we track.
We alert you to any difference between voting and economic interest percentages.
Management conference calls, investor presentations and other disclosures frequently offer valuable insight into the insiders' view of prospective performance or equity value.
When we uncover a disclosure that may significantly advance your assessment of a company, we include the information in our reports. Such content is linked back to the source, making it easy to dig deeper.
We rate each company along seven criteria, awarding one to five stars based on our assessment of value, downside protection, management ability and incentives, financial strength, moat, earnings momentum, and the macroeconomic impact on a company's prospects.
Review "The Bottom Line" for our summary investment thesis on each of the twenty ideas profiled in each monthly issue.
We lay out the factors we consider most impactful to a determination of value. We render judgment on the merits based on the estimated divergence between fair value and the market quotation.
Unlike most equity research firms, we judge the merits through the eyes of a prospective long-term owner. As such, our research won't help you win John Maynard Keynes' "beauty contest," but it may help you win what Charlie Ellis has called "the loser's game."
Free trial, no long-term contracts, pay-as-you-go.
The Manual of Ideas is yours for only $99/month.
Gauge the sensitivity of equity value to changes in key assumptions by accessing relevant Excel spreadsheets.
We present three scenarios for each company, ranging from a pessimistic to an optimistic approach to estimating fair value.
As the three scenarios typically involve not only changes in assumed valuation multiples but also differences in the actual approach to valuing the equity, you will typically benefit from three distinct ways of thinking about the fair value of each idea.
For example, in the conservative case, we may consider a company's liquidation value, based on the principles of security analysis advocated by the late Ben Graham, author of Security Analysis and The Intelligent Investor.
You'll enjoy the logic and clarity behind each of the valuation scenarios presented, because each analysis starts with an overview of the valuation methodology utilized and continues through the steps needed in order to arrive at fair value. The steps are tied together with mathematical logic, making it extremely easy to reconstruct each valuation exercise.
You won't see us wasting your time with irrelevant DCF analyses that depend on seven years of projections and are highly sensitive to discount rate assumptions. You won't see us valuing non-capital-intensive businesses based primarily on tangible capital employed. You won't find us valuing companies with several distinct businesses in a monolithic way.
You will gain from analyses that are tailored to the specific equity ideas at hand.
The following are a few of the approaches we use for assessing equity value:
- Liquidation value
- Sum-of-the-parts valuation
- Valuation based on free cash flow
- Valuation based on normalized earning power
- Valuation based on adjusted tangible book value
- Valuation based on consensus EPS estimates
- Valuation based on public comparable multiples
- Discounted cash flow, e.g., PV-10 for E&P firms
Access Excel spreadsheets containing all valuation scenarios. Gauge the sensitivity of fair value estimates to tweaks in the underlying assumptions. See how changes in inputs affect both enterprise value and equity value estimates.
Gain quick insight into some of the key financial metrics of selected publicly traded competitors and other comparable companies. Uncover situations in which a company is outperforming its peers in terms of key operating metrics, yet the stock trades at a discount to peers based on key valuation ratios.
Free trial, no long-term contracts, pay-as-you-go.
The Manual of Ideas is yours for only $99/month.
Follow our top ideas in three categories: downside protection, deep value, and magic formula. Read our latest theses and get alerted when positions change.
This sub-portfolio consists of undervalued equities that, in our judgment, offer significant downside protection and material upside potential. We define downside protection as a low probability of permanent capital impairment rather than a low probability of a short-term stock price decline. The latter is impossible to judge, while the former is conducive to fundamental analysis.
The equities in this sub-portfolio are extremely cheap on an asset basis but may have downside risk due to financial leverage. The latter makes these companies unsuitable for the downside protection model portfolio. Nonetheless, even with impairment risk, we view these companies as offering a highly favorable risk-reward tradeoff.
The equities in this sub-portfolio score well on the dual criteria outlined in Greenblatt's The Little Book — a high earnings yield and high returns on capital employed. Unlike companies in the first two portfolios, magic formula selections are undervalued based on earning power rather than asset value.
The portfolios are available online as a Google Docs spreadsheet, with stock price data updated in near-real time. We benchmark against the S&P 500, Russell 2000 and Russell 2000 Value indices, making it easy to gauge relative performance.
Free trial, no long-term contracts, pay-as-you-go.
The Manual of Ideas is yours for only $99/month.
Our ever-expanding list of value-added features will help you add best practices to your investment process.
Why insist on complete originality when the combination of differentiated ideas and those favored by a select group of superinvestors may deliver the best results? The Manual of Ideas prides itself on original ideas, but we also closely follow the portfolio moves of 50+ leading investment managers.
Our proprietary Signal Rank methodology answers the question, "What are each investor’s top ten ideas right now?" Rather than simply showing an investor’s largest holdings as of the most recent quarter end, we rank the companies in each portfolio based on the investor’s current level of conviction in each holding, as judged by The Manual of Ideas.
Complementing the presentation and analysis of investment ideas are insightful interviews with some of the most successful fund managers of our time. Learn how they got started, what investment approaches they favor, what they perceive as their unique edge, how they identify promising investment ideas, which mistakes they view as most pernicious, what readings helped them hone their craft, and much more. Our exclusive interviews focus on lessons that never go out of style, resulting in a rich library of discussions you'll be able to draw upon repeatedly over time.
The Manual of Ideas regularly includes special features authored some of the finest minds in the investment business. Ori Eyal of Emerging Value Capital Management recently showed how value-oriented investors should go about evaluating the many Fannie Mae and Freddie Mac preferred issues available for purchase. Josh Tarasoff of Greenlea Lane Capital shared his unique approach to identifying businesses with exceptional pricing power. Lisa Rapuano shared her contrarian thesis on for-profit education provider Corinthian Colleges following her one-on-one meetings with senior management.
We embrace the goal of life-long learning and the notion that knowledge is cumulative in the investment field. We keep an eye out for valuable third-party content, bringing you our top ten selections each month.
We also occasionally purchase unique third-party content for the benefit of our members. For example, we acquired rights to Ravi Nagarajan's Berkshire Hathaway report and model in advance of the 2011 annual meeting.
Our members also benefit from proprietary video and audio content complementing our monthly reports or featuring investment wisdom. For example, our audio program on Henry Singleton discussed the traits and strategies of one of the finest capital allocators of the 20th century.
Visit members.manualofideas.com to get the latest value investing news and opinions, meet like-minded investors, exchange views on specific companies or other investment topics, ask questions about ideas covered in our reports, and much more. Enter the "Exclusive Forum" to track the model portfolio and access all monthly issues since inception of The Manual of Ideas.
Guy Spier, CEO of Aquamarine Capital Management, and John Mihaljevic, managing editor of The Manual of Ideas, host an annual event for value investors in Zurich/Klosters in early February following the World Economic Forum in Davos. Our members are invited to attend the exclusive but free event (space is limited so apply soon). VALUEx is modeled after the TEDx conferences, which focus on "ideas worth sharing." Since the inaugural VALUEx in Zurich/Klosters in February 2011, similar, independently-organized events have sprung up worldwide, including in Vail, Colorado and Mumbai, India.
Free trial, no long-term contracts, pay-as-you-go.
The Manual of Ideas is yours for only $99/month.
