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

To: TimbaBear who wrote (4769)	8/22/1998 11:24:00 PM
From: Michael Burry	Read Replies (1) \| Respond to of 78990

First let's pretend it's not mildly pathetic that on a Saturday night this board gets so active <g>. This may explain some of the uncomfortableness with passive index funds here<G>. TimbaBear, I remember you from some thread somewhere a long time ago. This one? Well, in any case, I disagree with the premise that a margin of safety comes primarily from "if liquidation occured what would we have." Two reasons: 1) Even on value stocks, the liquidation value is often a fraction of the price paid. In a liquidation, even value investors lose a large part of their collective shirt. Net nets are one exception, and even most of them aren't really an exception due to inventory bloat. 2) Value stocks are more likely to undergo liquidation as a group than the S&P Index. Often these are poor businesses and there is a reason they are trading just above or near liquidation value. This is my hypothesis, and I have no proof for this. That said, I think that the liquidation value is indeed one component of a margin of safety (and it may even be the first thing to look at), but the rest comes from time-consuming research that confirms liquidation won't occur and that the business should be valued much higher for one reason or another, IMO. This part is an awful lot of art and not much science IMO. Mike