The Art of Value Investing: How the World’s Best Investors Beat the Market

336 Pages·2013·33.831 MB·English

by  Whitney Tilson, John Heins

The Art of
Value Investing
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The Art of
Value Investing
How the World’s Best
Investors Beat the Market
JohN hEiNS
WhiTNEy TilSoN
Cover image: © iStockphoto.com/Candice Cusack
Cover design: leiva-Sposato
Copyright © 2013 by Value investor Media, inc. All rights reserved.
Published by John Wiley & Sons, inc., hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
iSBN 978-0-470-47977-3 (hardcover)
iSBN 978-1-118-22029-0 (ePDF)
iSBN 978-1-118-25863-7 (Mobi)
iSBN 978-1-118-23396-2 (ePub)
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
Contents
Introduction 1
Chapter1
“allSensibleInvestingIsValueInvesting” 5
What It Means to Be a Value Investor 6
Does Quality Matter? 13
The Value of Growth 19
The Value Mindset 25
partONe
Fieldofplay 33
Chapter2
CircleofCompetence 35
The Right Size 36
Industry Preference 45
Where in the World? 57
Chapter3
DeficientMarkethypothesis 65
The Human Element 66
It’s a Matter of Time 74
Chapter4
FertileGround 81
In Search of Uncertainty 82
Special Situations 86
Operating Turnarounds 93
v
vi Contents
Chapter5
GeneratingIdeas 99
Behind the Screen 99
Follow the Lead 106
Reliable Sources 111
parttWO
BuildingtheCase 115
Chapter6
CuttingthroughtheNoise 117
Second-Level Thinking 118
Macro versus Micro 120
Business First 127
What Quality Means 131
Crunching the Numbers 135
What Could Go Wrong? 139
From the Top 147
How Important Is Management? 147
Handicapping the Jockeys 149
Red Flags 157
Catalysts 164
Getting It Done 169
Organizing Principles 174
Chapter7
GettingtoYes 183
Cash (Flow) Is King 184
Multiple Angles 190
The Informed Buyer 192
Model Behavior 194
Playing the Odds 199
Theories of Relativity 202
Pulling the Trigger 206
partthree
activeManagement 213
Chapter8
theportfolio 215
Concentration versus Diversification 215
Contents vii
The Size That Fits 222
Cognizance of Correlation 227
Chapter9
playingthehand 233
Trading Mentality 233
Dealing with Adversity 239
Taking a Stand 248
Attracting Activists’ Attention 251
Chapter10
Guardingagainstrisk 257
Margin of Safety 258
Building a Position 261
Cash Management 263
Midas Touch 267
Hedging Bets 268
To Short or Not to Short? 268
Value Destroyers 271
Portfolio Hedging 276
Is Shorting Inherently Evil? 277
Chapter11
MakingtheSale 281
Why to Sell 282
Selling by the Numbers 286
Getting the Timing Right 290
Sale Process 293
partFOur
OfSoundMind 297
Chapter12
OfSoundMind 299
Competitive Spirit 300
Independent Thought 303
Perpetual Student 306
To Err Is Human 309
Be Ever So Humble 312
viii Contents
theFinalWord 315
abouttheauthors 317
Index 319