Steve may I suggest the following paper that Paul Senior pointed me to "THE EVOLUTION OF THE IDEA OF “VALUE INVESTING”: FROM BENJAMIN GRAHAM TO WARREN BUFFETT" :(http://www.econ.duke.edu/Journals/DJE/dje2000/bierig.PDF).
Specifically check out page 12 regarding Graham's investment in Northern Pipe Line. Remember this was in 1928 and financial information was limited to those investors that dug deep into the records that were not normally public information.
After many years of digging into company's financials, I have found that with public disclosures and computer data mining, many of the "value" propositions are known to the market and basically priced accordingly. The market is now more efficient when everybody scans the same information.
Like Graham, you need to look at "other" public data sources that many of the so called analysts do not even consider. There is one source that I have been using for the past several years and that is "Property Title Information".
Almost all of the property title information is now available in different databases that can be accessed from the Internet. I completed an analysis where I scanned all of the property owned by Sears and JC Penny (and/or their holding companies) and quantified (1) the year the property parcel was acquired, (2) their original cost, (3) parcel size and zoning and (3) my best estimate (based on current sales)of today's market value.
I completed my analysis for Sears in early 2003 and discovered that at the then current price of $19/share, Sears was significantly undervalued. I scanned over 1654 properties and discovered that Sears in all of their holdings owned the property land where their stores and distribution centers were located. In fact, they even owned the Mall sites either in proportion to the size of their store or the complete Mall site it's self (usually in partnership with the original developer).
After adjusting my valuation calculation to reflect the current market prices, Sears in May of 2003 had real estate holdings "understated" on their balance sheet at between $8-$11 per share! With this fact in hand, I bought a significant holding in the stock at prices between $19 and $22.
The only problem in finding the hidden value jewel, is waiting for other investors to discover this. Sometimes you have to wait years for a large investment group to develop a plan that is approved by the current board to bring out the true value to the common shareholders. Even this approach can screw the common shareholder as evidenced by the recent K-Mart bankruptcy.
Perhaps this approach would work better with smaller companies that have hidden assets and the board of directors are ethical and are advocates for delivering the "market value" to the common shareholders. This is why I also now look for large 5% shareholders that have more clout in delivering the true value back to the common shareholder.
Types of undervalued assets not reflected in the stated balance sheet include many types of natural resources, land holdings that have had (or can have) significant re-zoning approvals (ie agriculture land rezoned to high density housing), company patents, litigation monies set aside w/ the outcome in favor of the company, new government regulations (usually taxes) that favor new technologies (i.e. VOIP phone services) and many other intangible holdings that now have value but may not even appear as an asset in the company's balance sheet.
In summary, you can use computer data mining to help screen potential company value proposition candidates but unless the general market realizes the true economic value, you may be sitting on a dead asset for awhile. This is why you need to have an advocate like a 5% common stock holder or company director(s)(w/ significant vested interests) to help recognize this value back to the common shareholder. Even with these considerations, the common shareholder can still get screwed in a bankruptcy proceeding with unethical directors, greedy buy out partners and even under the table payoffs that result in nothing going back to the common shareholder.
I guess that is just the nature of our capitalistic system.
Happy New Year to All . . .
EKS
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