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The Art of Value Investing: How the World's Best Investors Beat the Market

ISBN: 978-0-470-47977-3
336 pages
April 2013
The Art of Value Investing: How the World
Says Bill Ackman of Pershing Square Capital Management about The Art of Value Investing:

"I learned the investment business largely from the work and thinking of other investors. The Art of Value Investing is a thoughtfully organized compilation of some of the best investment insights I have ever read. Read this book with care. It will be one of the highest-return investments you will ever make."

Based on interviews with the world's most-successful value investors, The Art of Value Investing offers a comprehensive set of answers to the questions every equity money manager should have thought through clearly before holding himself or herself out as a worthy steward of other people's money. What market inefficiencies will I try to exploit? How will I generate ideas? What will be my geographic focus? What analytical edge will I hope to have? What valuation methodologies will I use? What time horizon will I typically employ? How many stocks will I own? How specifically will I decide to buy or sell? Will I hedge, and how? How will I keep my emotions from getting the best of me?

Who should read The Art of Value Investing? It is as vital a resource for the just starting out investor as for the sophisticated professional one. The former will find a comprehensive guidebook for defining a sound investment strategy from A-to-Z; the latter will find all aspects of his or her existing practice challenged or reconfirmed by the provocative thinking of their most-successful peers. It also is a must read for any investor – institutional or individual – charged with choosing the best managers for the money they are allocating to equities. Choosing the right managers requires knowing all the right questions to ask as well as the answers worthy of respect and attention – both of which are delivered in The Art of Value Investing.

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Introduction 1

Chapter 1 “All Sensible Investing Is Value Investing” 5

What It Means to Be a Value Investor 6

Does Quality Matter? 13

The Value of Growth 19

The Value Mindset 25

Part ONE Field of Play 33

Chapter 2 Circle of Competence 35

The Right Size 36

Industry Preference 45

Where in the World? 57

Chapter 3 Deficient Market Hypothesis 65

The Human Element 66

It’s a Matter of Time 74

Chapter 4 Fertile Ground 81

In Search of Uncertainty 82

Special Situations 86

Operating Turnarounds 93

Chapter 5 Generating Ideas 99

Behind the Screen 99

Follow the Lead 106

Reliable Sources 111

Part TWO Building the Case 115

Chapter 6 Cutting Through the Noise 117

Second-Level Thinking 118

Macro versus Micro 120

Business First 127

What Quality Means 131

Crunching the Numbers 135

What Could Go Wrong? 139

From the Top 147

How Important Is Management? 147

Handicapping the Jockeys 149

Red Flags 157

Catalysts 164

Getting It Done 169

Organizing Principles 174

Chapter 7 Getting to Yes 183

Cash (Flow) Is King 184

Multiple Angles 190

The Informed Buyer 192

Model Behavior 194

Playing the Odds 199

Theories of Relativity 202

Pulling the Trigger 206

Part Three Active Management 213

Chapter 8 The Portfolio 215

Concentration versus Diversification 215

The Size That Fits 222

Cognizance of Correlation 227

Chapter 9 Playing the Hand 233

Trading Mentality 233

Dealing with Adversity 239

Taking a Stand 248

Attracting Activists’ Attention 251

Chapter 10 Guarding Against Risk 257

Margin of Safety 258

Building a Position 261

Cash Management 263

Midas Touch 267

Hedging Bets 268

To Short or Not to Short? 268

Value Destroyers 271

Portfolio Hedging 276

Is Shorting Inherently Evil? 277

Chapter 11 Making the Sale 281

Why to Sell 282

Selling by the Numbers 286

Getting the Timing Right 290

Sale Process 293

Part four Of Sound Mind 297

Chapter 12 Of Sound Mind 299

Competitive Spirit 300

Independent Thought 303

Perpetual Student 306

To Err Is Human 309

Be Ever So Humble 312

The Final Word 315

About the Authors 317

Index 319

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JOHN HEINS is the cofounder and President of Value Investor Media, Inc., a media company founded in 2004 to provide investing ideas and insight to sophisticated professional and individual investors, and Editor-in-Chief of Value Investor Insight and SuperInvestor Insight. Previously, Mr. Heins was President and Chief Executive Officer of Gruner + Jahr USA Publishing, Bertelsmann AG's U.S. magazine subsidiary, Senior Vice President and General Manager of America Online's Personal Finance business, and a reporter and staff writer for Forbes magazine. He graduated magna cum laude from the University of Pennsylvania's Wharton School with a bachelor's degree in Economics and also holds an MBA from Stanford University's Graduate School of Business.

WHITNEY TILSON is the cofounder of hedge funds Kase Capital and T2 Partners, the Tilson Mutual Funds, Value Investor Media, Inc. and the Value Investing Congress. He coauthored the book, More Mortgage Meltdown: 6 Ways to Profit in These Bad Times, is a CNBC Contributor, has written for Forbes, the Financial Times, Kiplinger's, the Motley Fool and TheStreet.com, and was one of the authors of Poor Charlie's Almanack, the definitive book on Berkshire Hathaway Vice Chairman Charlie Munger. He was one of five investors included in SmartMoney's 2006 "Power 30," and was named by Institutional Investor in 2007 as one of "20 Rising Stars." Previously, Mr. Tilson was a founding member of Teach for America and the Initiative for a Competitive Inner City, and was a consultant at The Boston Consulting Group. He received an MBA with High Distinction from the Harvard Business School and graduated magna cum laude from Harvard College with a bachelor's degree in Government.

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“John Heins and Whitney Tilson, co-founders of the Value Investor Insight newsletter, have done a thorough job of explaining how to look for stocks that are trading at significant discounts to what they are worth — the concept known as the value style of investing.…the authors present a clear framework for ferreting out undervalued companies.”
The New York Times

“[The Art of Value Investing] is packed with invaluable insights and is relevant to both the novice and the experienced investor. …This book provides a valuable contribution to the industry literature on value investing. It is well written, well organized, and quite enjoyable. The Art of Value Investing should be read by all investors who are seriously interested in enhancing their understanding of this important field.”
CFA Institute Book Review

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April 25, 2013
How the World's Best Investors Beat the Market

Based on interviews with the world's most-successful value investors, The Art of Value Investing, by John Heins and Whitney Tilson, offers a comprehensive set of answers to the questions every equity money manager should have thought through clearly before holding himself or herself out as a worthy steward of other people’s money. What market inefficiencies will I try to exploit? How will I generate ideas? What will be my geographic focus? What analytical edge will I hope to have? What valuation methodologies will I use? What time horizon will I typically employ? How many stocks will I own? How specifically will I decide to buy or sell? Will I hedge, and how? How will I keep my emotions from getting the best of me?

Authors Tilson and Heins have delegated the task of providing answers to such questions to the experts: the market-beating money managers to whom they’ve had unparalleled access as the co-founders of leading investment newsletter Value Investor Insight. That includes such hudgefund superstars as Julian Robertson, Seth Klarman, Leon Cooperman, David Einhorn, Bill Ackman and Joel Greenblatt, as well as mutual-fund luminaries including Marty Whitman, Mason Hawkins, Jean-Marie Eveillard, Bill Nygren and Bruce Berkowitz.

Who should read The Art of Value Investing? It is as vital a resource for the just-starting-out investor as for the sophisticated professional one. The former will find a comprehensive guidebook for defining a sound investment strategy from A-to-Z; the latter will find all aspects of his or her existing strategy challenged or reconfirmed by the provocative thinking of their most-successful peers. It also is a must-read for any investor – institutional or individual – charged with choosing the best managers for the money they are allocating to equities. Choosing the right managers requires knowing all the right questions to ask as well as the answers worthy of respect and attention – both of which are delivered in The Art of Value Investing.

See More
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