Saturday, March 11, 2006

Definition of "Deep Value" Investing

I wasn't satisfied with the definitions I found on the web of "deep value" investments or deep value investing, so I sought to create my own. Which is as follows:

Deep Value investors employ an extreme version of value investing that is characterized by holding the stocks of companies with extremely low valuation measures. In today's market place (industrialized countries), this might include those with price/book ratios well below 1.0 or price/earnings ratios below six or seven. Often times, these companies are particularly out-of-favor or in industries that are out-of-favor or combine both: out-of-favor companies in out-of-favor industries.

Very often, they are seen as "old school" investments in so-called "sunset" industries. Occassionally, nothing appears very wrong with a "deep value investment", except that nobody else seems to want to buy it, and it has languished at low prices/valuation metrics for several years, despite decent earnings and balance sheet.

From time-to-time deep value investors end up with investments that simply do the "deep six" and never recover. That's simply the nature of the beast. Deep value investing requires more internal strength than any other type, and greater ability to ignore the herd.

Deep value investing - extremely profitable for the right personality type.


The Confused Capitalist

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