Tobias speaking on April 21, 2015 to Michael Parzen’s business statistics class at Harvard on Deep Value and the acquirer’s multiple.
Tobias discussing “Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations” at Authors@Google. The book is an exploration of the philosophy of deep value investment. It describes the evolution of the various theories of intrinsic value and activist investment from Benjamin Graham to Warren Buffett to Carl Icahn and beyond. Filled with engaging anecdotes, penetrating statistical analysis and meticulous research, the book illustrates the principles and strategies of deep value investing and examines the counterintuitive idea behind its extraordinary performance.
It is a simple, but counterintuitive idea: Under the right conditions, losing stocks—those in crisis, with apparently failing businesses, and uncertain futures—offer unusually favorable investment prospects. This is a philosophy that runs counter to the received wisdom of the market. Many investors believe that a good business and a good investment are the same thing. Many value investors, inspired by Warren Buffett’s example, believe that a good, undervalued business is the best investment.
The research offers a contradictory view. Deep Value is an investigation of the evidence, and the conditions under which those losing stocks become asymmetric opportunities, with limited downside, and enormous upside. In pursuit of this idea, it canvases the academic and industry research into theories of intrinsic value, management’s influence on that value, and the impact of attempts to unseat management on both market price and value. The value investment philosophy as first described by Benjamin Graham identified targets by their discount to liquidation value. That approach has proven extremely effective; however, those opportunities have all but disappeared from the modern stock market. To succeed, today’s deep value investors have adapted Graham’s philosophy, embracing its spirit while pushing beyond its confines. In Deep Value, I examine Graham’s 80-year-old intellectual legacy using modern statistical techniques to offer a penetrating and highly original perspective: That losing stocks offer unusually favorable investment prospects. The evidence reveals an axiomatic truth about investing: Investors aren’t rewarded for picking winners; they’re rewarded for uncovering mis-pricing.