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The Manual of Ideas: The Proven Framework for Finding the Best Value Investments


Praise for The Manual of Ideas

"Smart investors will read this book carefully and hope that few others do."
—Bryan Lawrence, founder, Oakcliff Capital

"This is a fantastic book chock-full of investing wisdom fit for both amateur and pro. John has produced an investment gem that's wide-ranging in scope yet packaged in concise form."
—Allan Mecham, founder, Arlington Value Capital

"A great read and very useful. The strategies in The Manual of Ideas give investors tangible and solid opportunities to maximize any portfolio."
—Dave Sather, President, Sather Financial Group, Inc.

"John Mihaljevic publishes what I regard as the very best investing newsletter on the planet. Actually, it is more of a frequently updated investing manual. This fantastic book is chock-full of exceptional value investing wisdom gleaned from the best and curated by perhaps the best value investing curator out there. Reading it can only lead to better investing results for everyone. Thank you, John, for your exceptional service to the value investing community."
—Mohnish Pabrai, Managing Partner, Pabrai Investment Funds

"The Manual of Ideas is a comprehensive investing book that clearly outlines a variety of ways to successfully navigate the complex global investment landscape. There are many excellent insights, describing specific tools, strategies, and approaches to becoming an outstanding investor. The book includes approaches used by some of the best investors in the world to generate ideas, evaluate business models, and assess management teams. While successful investing requires flexibility and originality, it must always be grounded in a disciplined analytical approach, focusing first on assessing and managing risk. I highly recommend The Manual of Ideas to all prospective investors from beginners to experienced practitioners."
—Paul Lountzis, President, Lountzis Asset Management, LLC

"Informed by countless hours interviewing the world's greatest investors and John's rich experience and insights, The Manual of Ideas arms the reader with a powerful set of idea-generation tools. The book efficiently covers the spectrum of value investing approaches, each brought to life with outstanding real-world examples. The book's combination of effective tools and instruction offers a high return on investment!"
—Jason Dunn, CFA, founder/Portfolio Manager, White Bison Capital

John Mihaljevic, CFA, is a Managing Editor of The Manual of Ideas, the monthly idea-oriented research publication for value-oriented investors, and a Managing Director of ValueConferences, a series of fully online investment conferences for value-oriented investors. He has also served as Managing Partner of the investment firm Mihaljevic Capital Management LLC since 2005. He is a member of Value Investors Club, an exclusive community of top money managers, and has won the club's prize for best investment idea. John is a trained capital allocator, having studied under Yale University Chief Investment Officer David Swensen and served as research assistant to Nobel laureate James Tobin. John holds a BA in economics, summa cum laude, from Yale and is a CFA charterholder. He resides in Zurich, Switzerland, with his wife, two sons, and a daughter.

Preface xiii

CHAPTER 1 A Highly Personal Endeavor: What Do You Want to Own? 1

Give Your Money to Warren Buffett, or Invest It Yourself? 2

Cast Yourself in the Role of Capital Allocator 7

Owner Mentality 14

Stock Selection Framework 17

Key Takeaways 18

Notes 20

CHAPTER 2 Deep Value: Ben Graham-Style Bargains Inelegant but Profi table Strategy of Cigar Butt Investing 23

The Approach: Why It Works 24

Uses and Misuses of Ben Graham-Style Investing 34

Screening for Graham-Style Bargains 41

Beyond Screening: Working through a List of Deep Value Candidates 44

Asking the Right Questions of Graham-Style Bargains 49

Key Takeaways 53

Notes 54

CHAPTER 3 Sum-of-the-Parts Value: Investing in Companies with Excess or Hidden Assets 57

The Approach: Why It Works 58

Uses and Misuses of Investing in Companies with Overlooked Assets 60

Screening for Companies with Multiple Assets 64

Beyond Screening: Proven Ways of Finding Hidden Assets 69

Asking the Right Questions of Companies with Hidden Assets 78
Key Takeaways 81

Notes 82

CHAPTER 4 Greenblatt’s Magic Search for Good and Cheap Stocks 83

The Approach: Why It Works 84

Uses and Misuses of Investing in Good and Cheap Companies 91

Screening for Good and Cheap Companies 98

Beyond Screening: Hope for Improvement Springs Eternal 102

Asking the Right Questions of Greenblatt-Style Bargains 106

Key Takeaways 113

Notes 114

CHAPTER 5 Jockey Stocks: Making Money alongside Great Managers 117

The Approach: Why It Works 118

Uses and Misuses of Investing in Jockeys 121

Screening for Jockey Stocks 131

Beyond Screening: Building a Rolodex of Great Managers 141

Asking the Right Questions of Management 146

Key Takeaways 150

Notes 151

CHAPTER 6 Follow the Leaders: Finding Opportunity in Superinvestor Portfolios 153

Superinvestors Are Super for a Reason 154

Uses and Misuses of Superinvestor Tracking 157

Screening for Companies Owned by Superinvestors 160

The Superinvestors of Buffettsville 163

Beyond Screening: What Makes a Company Attractive to Superinvestors? 171

Key Takeaways 175

Notes 177

CHAPTER 7 Small Stocks, Big Returns? The Opportunity in Underfollowed Small- and Micro-Caps 179

The Approach: Why It Works 180

Uses and Misuses of Investing in Small Companies 185

Screening for Promising Small- and Micro-Caps 189

Beyond Screening: Other Ways of Finding Compelling Small- and Micro-Cap Ideas 197

Asking the Right Questions of Small-Cap Prospects 207

Key Takeaways 212

Notes 214

CHAPTER 8 Special Situations: Uncovering Opportunity in Event-Driven Investments 215

The Approach: Why It Works 216

Uses and Misuses of Investing in Special Situations 220

Uncovering Special Situations 227

Asking the Right Questions of Special Situations 231

Key Takeaways 236

Notes 237

CHAPTER 9 Equity Stubs: Investing (or Speculating?) in Leveraged Companies 239

The Approach: Why It Works 241

Uses and Misuses of Investing in Equity Stubs 242

Screening for Equity Stubs 251

Beyond Screening: An Ambulance-Chasing Approach 253

Asking the Right Questions of Equity Stubs 257

Key Takeaways 264

Notes 265

CHAPTER 10 International Value Investments: Searching for Value beyond Home Country Borders 267

The Approach: Why It Works 269

Uses and Misuses of Investing in International Equities 272

Screening for International Equities 280

Beyond Screening: Riding the Coattails of Regional Experts 283

Asking the Right Questions of International Equities 285

Key Takeaways 291

Notes 292

References 295

About the Author 303

Index 305