With Deep Value, Tobias Carlisle, founder of Carbon Beach Asset Management LLC, makes the most compelling case for value investing since Graham and Dodd.
Using captivating case studies and strong academic research, he promotes a strategy which seeks stocks ripe for activist takeovers. The idea being that one catalyst or another will eventually close the gap on the discount between market price and intrinsic value.
A Contrarian Stategy
Carlisle advocates for a counterintuitive style of investing - one that buys losing corporations whose stock prices are suffering for any number of reasons.
His is a contrarian strategy to the core: claiming that "even in value portfolios, high growth leads to under performance and low or no growth leads to out performance." While arguing that "deeply undervalued companies offer very attractive returns," Carlisle states, "the uglier the stock, the better the return."
What makes this phenomenon so prevalent is the concept of mean reversion.
Using the ancient Roman myth of King Servius and the Goddess Fortuna to set the scene, Carlisle lays out historical and statistical facts showing that mean reversion is inevitable - not only in market valuations, but also in business operations.
Knowing that "Fortuna's wheel is more likely to lift [undervalued] stocks than crush them" gives deep value investors an advantage over investors looking to buy wonderful companies with strong earnings growth and high returns on capital.
In addition to heavily quoting Ben Graham, the book carefully analyzes specific investments made by some of the world's greatest investors - Carl Icahn, T. Boone Pickens, Warren Buffett, and more.
These examples give individual investors valuable insight into how the most experienced investors find and profit from deep value stocks. This clear, concise, and sophisticated manuscript is worth a read for investors of any level.