Friday, March 10, 2006

Deep Value Scorecard - Part II

This continues on a scorecard from The Contra Guys, half of which was shown over here, yesterday. The premise was, that in order to properly assess "deep value" investments, a good scorecard is needed.

Given The Contra Guys excellent long-term record of very high returns using their contrarian investing techniques (26% return annually over 10 years), it's felt that this particular scorecard offers unusual utility. Anyway, yesterday, the first 12 items were given; today, the remaining eleven are shown:
  1. Positive financial condition +1 or +2
  2. Amount of time followed +1 to +4
  3. Book value +1 to +2
  4. Reasonable price/earnings +1
  5. Downtrodden industry +1
  6. Readable annual report +1
  7. Public awareness +1
  8. Excellent cash flow +1
  9. Our understanding of the business +1
  10. Possibility of a takeover +1
  11. Intangibles +1
The benchmark of these 23 items that's required before The Contra Guys will invest is a minimum score of ten. The higher the better obviously. If you want further explanation, you can buy their book, The Contrarian Investor's 13.

Still, using this scorecard alone in assessing deep value situations isn't going to guarantee success. However, it should improve your chances of success by allowing you to more diligently assess a situation, and also ensuring that you have methodically looked at a number of different areas that can enhance returns.

Perhaps another day, I'll show you another scorecard I've used that's been well "field-tested".


The Confused Capitalist

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