The book Deep Value Investing advocates such a judgmental approach but with a quantitative basis. Most value investors these days like to purchase shares at an apparent discount to earning power. The book's author, Jeroen Bos, likes to purchase shares with a less ambiguous margin of safety: a discount to asset values. Bos separates his operations into two distinct buckets:
- Purchasing shares of companies below book value that still possess some degree of profitability
- Purchasing shares of companies below liquidating value regardless of profitability
Of course, my inner academic wants to retain healthy skepticism. How much of Bos's performance explained by the simple value factor? Is he getting superior risk-adjusted return? Are the companies he's invested in actually just riskier? Or are they actual bargains? What's the volatility of the fund? Can we statistically explain his performance by luck?
Be that as it may, I think the book is excellent and well worth reading. It's a simple, straightforward primer on actionable value investing. There are lots of case studies, and the author is even forthcoming enough to talk about his failed investments. Do get your hands on this one if you get the opportunity!
As a value guy myself, I think the circled area of the first picture is going to be how I choose my vacation destinations in the future!
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