The Best Value Traps

Barbarian Capital posted a question to finance Twitter the other day that led to a string of interesting answers.

The question was: You’re not a value investor until you have lost money being …

You’re not a value investor until you have lost money being
(1) Long bombed out has-been fashion brands and retailers
(2) …(chip in)…

Michael Mauboussin: Challenges and Opportunities in Active Management And Using BAIT #MICUS

michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkMichael Mauboussin's notes from his presentation at the 2020 Morningstar Investment Conference, held on September 16th and 17th. Q2 2020 hedge fund letters, conferences and more Michael Mauboussin: Challenges and Opportunities in Active Management Michael Mauboussin is Head of Consilient Research at Counterpoint Global in New York. Previously, he was Director of Research BlueMountain Capital, Read More

— Barbarian Capital (@BarbarianCap) October 24, 2015

Here’s the best answers:

Barbarian Capital I’d add low multiple resource names (“my pick is diff because…”) and short new category growth (ie CMG MNST)

Dumb Luck Capital … 2) Coal, 3) Waited “for the Ag cycle to turn,” … 6) Use “mid-cycle earnings” on melting ice cubes

Shortsighted Capital 1) Bought a financial because it’s at a big discount to book 2) Believed mgmt estimates of O&G exposure … 7) Buffett owns it, so it’s high quality

Alex Rubalcava Bought emerging market equity b/c value, ignored macro.

modest proposal Korean telcos, Korean preferreds, Japanese net of equity holdings stubs, negative EV stubs in general, net nets run by idiots

FCFYield In a company for its NOLs

Adib Motiwala Company has a full payout, borrows to fund capex, cyclical and has bad balance sheet. But it’s low pe

modest proposal discount to real estate value, low multiple cyclicals at peak earnings, insurers, specialty finance co’s on backside of growth

Risk Scare-ity Surprised it hasn’t been mentioned: Long railroads on low P/E while ignoring maint capex and asset depreciation.

Skeletor Capital Asset manager GPs, RAX, Greek banks, IBM, “secret” Malone exposure, GSE preferreds, mortgage servicers

Guillermo Long a “cheap” 2nd or 3rd tier player in a growing industry (“enough demand for everyone!”)

CthomasC Long industrials at late in the cycle because they are “cheap” forgetting about where margins are likely headed

PatientInvesting101 SOTPs. The XYZ segment is worth the entire EV, you get the rest for FREE!

Howster “so cheap on FCF! 35% levered FCF yield, we get paid back in 3 years!” Doesn’t work on melting ice cubes…

Dean using “normalized” earnings that never normalize, buy cheap declining industry & assuming mgmt will allocate capital properly

james listening to people who “did the research and spoke to mgmt” rather than doing my own work