Global Value Investing

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A multifaceted approach to value investing with stock valuation based on intrinsic value estimated from cash returns, appraised value of assets, and other facets of value.

 

 

Resource Conversions

Takeovers can trigger a new wave of consolidation in an industry, and a company in the industry may benefit if its stock price can command a control premium instead of a minority-interest discount. There are a few websites that focus extensively on mergers and acquisitions by industry group and provide some indication of current takeover activity.

There are not many books that discuss resource conversions which include takeovers, mergers and acquisitions, divestitures, spin-offs, and major refinancings including reorganizations and liquidations. Comments and excerpts from one such book follow.

Whitman, Martin J., 1999, Value Investing : A Balanced Approach. New York: Wiley & Sons. See listing in Special Books.

Real-world considerations are discussed, including corporate valuation, the substantive characteristics of securities, capital structure, promoters' and professionals' compensations, the uses and limitations of financial accounting and narrative disclosure, and the importance of semantics. The book provides an analytic framework for evaluating the impact of real-world factors and resource conversions, such as public policy and regulation, mergers and acquisitions, government and corporate finance, restructuring troubled companies, stockholder litigation, corporate power plays, and corporate share repurchase. The epilogue discusses the values of value investing.

Value investing as defined herein is different from other kinds of investing. These differences are based on seven characteristics.

(1) Value investing uses a balanced approach to analysis so that there is no a priori primacy given to any one factor in an appraisal.

(2) In value investing, the essential goal is to value a business or the workout potential for credits issued by troubled companies.

(3) In value investing, equity holdings are viewed as permanent or semi-permanent commitments, subject only to a risk arbitrage exception.

(4) In value investing, macro-factors such as the level of stock averages (e.g., the Dow-Jones Industrials), forecasts of interest rates, or the gross domestic product (GDP) are ignored.

(5) In value investing, as part of a balanced approach, businesses are viewed as both going concerns and as resource converters, deploying and redeploying their asset bases and liabilities into new areas including mergers and acquisitions, changes in control, massive refinancings, initial public offerings (IPOs), and leveraged buyouts (LBOs).

(6) In value investing, corporate analysis is viewed as something separate and distinct from market analysis.

(7) In value investing, the analyst is extremely price conscious in making judgments about the attractiveness of a security. In other disciplines, the strong tendency is to be outlook conscious rather than price conscious. In value investing, asset allocations are driven by price as related to the three factors inherent in a company: quality of resources, quantity of resources, and long-term wealth-creation potential.

 


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