The Mind of the Value Investor 1
The Essence of Value Investing 2
The Seven Fundamental Beliefs 9
The Five Keys of Value Framework 16
Putting It All Together: Revisiting Varian Associates 19
2 Business and Industry Assessment 25
Buying Businesses Versus Speculating on Stocks 25
Understanding the Business 28
Three Approaches to Analyzing a Business 36
Business-Quality Red Flags 44
Assessing Management 45
Assessing a Business: Herman Miller, Inc. 46
3 Price and Value Assessment 51
To Appreciate Price Is to Understand Value 52
Assessing Value: Tools to Consider 53
Valuing Herman Miller 71
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vi CONTENTS
4 Catalyst Identification and Effectiveness 77
Catalyst Defined 77
Potential Catalysts 79
Management Unlocking Value At Thermo Electron Corporation 92
5 The “Margin of Safety” Principle 99
What Is Margin of Safety? 99
Quantitative and Qualitative Reasoning 101
Risk and Uncertainty 108
Maytag Corporation: Finding a Safety Level 111
6 Assessing the Investment Opportunity 121
Value Investing and the Game of Golf 121
Identifying the Opportunity 122
Applying the Five Keys of Value to Fit the Opportunity 124
Cyclical Companies 135
Hybrid Opportunities 144
Avoiding Value Traps 144
7 Buying Right and Being an Owner 145
Ownership Is a Verb When Monitoring Your Investments 153
Buy and Hold, But Not Forever 166
8 Generating Value Ideas and Building an Independent Portfolio
Generating Value Investment Ideas:
Turning Over Every Stone 168
CONTENTS vii
Building Your Portfolio 177
Appendix A: Business Assessment Tools 181
Appendix B: Analyzing Wall Street Analysts’ Recommendations 185
Appendix C: The Critical Failings of EBITDA 194
Appendix D: Management’s Plan to Restructure a Company 206
Appendix E: Descriptions of SEC Forms 213
Index 227