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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Jurgis Bekepuris who wrote (39273)	9/14/2010 7:24:48 AM
From: Rainmaker888	Read Replies (1) \| Respond to of 78750

Jurgis, my catalyst comments: I agree with you on closing of the spread between performance and market price with Buffett/Graham net-nets. Here is my response to your comments on the catalysts: 1. New management - how can you evaluate the goodness or badness of management? I never could and I think 99% of the people can't You can evaluate this partly by looking at the management's track record (acquisition, growth, other capital allocation decisions) in the past. Perhaps the new CEO was previously successful and is making drastic changes...and the results are becoming positive. 2. Share buy-backs - it's somewhat OK, but IMHO it's never a deciding factor. Share dilution is bad though. Share buybacks at inflated price are common, bad, but almost unavoidable in Buffettology businesses (KO, PEP, etc.) That's why you see past track record of share buy-backs and determine if current buyback price is reasonable. 3. Spin-offs - this is a special situation investing and should be done as such. Don't invest in a company expecting spin-off, it may never happen. Spin-offs have produced annual results of 20% on average...you are right, never speculate on a spin-off, but when announced look rigorously at the terms, sometimes they are very favorable. 4. Asset sales - see comment on spin-offs. Partial asset sales can unveil value of the whole asset to the market 5. Change in corporate strategy - see comment on new management. Company may jump unprofitable divisions, boosting the bottom line. 6. Activist investors - if company needs activist investors, it's an avoid for me. Most of the time. Activist investors such can enforce good capital allocation decisions and force the company to avoid making bad ones. 7. M&A activity - Don't invest in a company expecting M&A, it may never happen. A purchase of a more profitable business can boost profits, a sale of unrelated division may allow the company to focus on core business, etc.... 1. Industry consolidation - see note on M&A. how do you evaluate if this is good/bad? Fewer competitor's = higher margins 2. Cyclicality - don't buy cyclicals or have cyclical-specific investment approach. *Mr. Market often overreacts to negativity, pushing some cyclicals to ridiculous valuations