Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations (Wiley Finance) Hardcover – August 18, 2014

I am glad I picked up Deep Value by Tobias Carlisle.Not since David Dreman's, "Contrarian Investment Strategies - The Next Generation" that I read in the late '90's, have I read such an important and interesting book on value investing. Yes, Deep Value by Tobias E. Carlisle is that good!I'm a quantitative or empirical minded guy. I like tables. I absolutely LOVE "What Works on Wall Street" (any edition!). I can read performance tables all day. It is rare for a book like Deep Value, that is absolutely full of individual stories and their market adventures; to hold my attention. Deep Value did. The stories are a lot of fun and incredibly purposeful - making the point of the chapter. Tobias' writing is amazingly good. I guess that shouldn't be too surprising (he is an active blogger after all on his greenbackd.com site). Nonetheless, the writing talent struck me. It's also rare these days for me to finish a book (and I love reading)...at least without (a) skimming through at least some parts or (b) buying and starting another book part way through. With Deep Value, I read every word of every page from start to finish! I had that sense of joy you get when you are reading a book that you know is a new favourite, along with that sad feeling when you get to the end and just wished there was a bit more. Not that there was a need for more...the author is extremely thorough with his topic.Another rarity for a book like this...on the one hand you get a fun read and a lot of insights and lessons learned. But (and this is for the empirical minded like myself)...on the other hand, every single claim is backed up by research. The various conclusions in this book are NOT simply the opinions of the author. You get the evidence. (Analysis table lovers like me don't get left out - there are a good handful dispersed throughout to keep you going :) )Some might be familiar with Icahn et al, but I really only knew about Ben Graham (again, because I have come at value investing from a purely numbers based approach). So, for people like me, you will get a wonderful history of some characters in (deep) value investing.Just a small point, but worth mentioning...I bought this book on kindle and everything was great: formatting, tables etc. The book had also clearly been very thoroughly edited. Not that I'm the type to look for them, but I usually notice one or two errors here and there...but I never noticed any (perhaps I was too engrossed). Another small point still worth mentioning...unlike SO many books, I don't think the author ever even mentioned his blog NOR did the author even once mention his investing firm (eyquem.net). As we all know, many otherwise decent books are somewhat spoilt by the over-advertising throughout by the author. But there was not even a tiny mention. This book was written with a pure passion for the topic (and, I suspect, a genuine joy of sharing knowledge with others).An absolute classic on a certain aspect of value investing, you won't be disappointed with Deep Value. Although it will continue to sit on my kindle, I now need to order a hardback edition...because I want to be able to put a copy of this book right next to Contrarian Investment Strategies on my book shelf. I can pay the book and the author no higher compliment.

This is an important, interesting, and entertaining book. The author chose a fascinating topic and did a great job describing the historical developments that influenced the evolution of activist investment strategies over time. The book is filled with information and historical facts, is well organized, well written, etc. Overall, a very enjoyable read. Something not easy to accomplish when it comes to finance books.Next, I would like to leave some personal remarks that I hope will help other readers diggest all the information contained in this book.1- Icahn and that first generation of activist investors had it good for some years. I think it would be impossible today to find companies that trade below their liquidation values. Besides, a lot of progress has been made in the last few decades regarding corporate governance and the alignment of incentives between managers and stockholders.2- Early activist investors used to behave more like speculators than investors. Grant it, they did get involved with the company and fought tough corporate battles against corrupt boards and bureaucratic management. However, they did so with the sole purpose of taking a quick, rather straightforward profit. The situation is much different today. Almost 10 years into the current bull market, with principal-agent incentives aligned, and an overall more efficient financial market, present-day activist investors are almost forced to get a longer term involvement with the company and help it improve its business and operations.3- The acquirer’s multiple strategy described by the author resembles more trading than investing. In my opinion, it is too systematic and too short termed (annual rebalancing) to be considered “investing”. Nothing wrong with it, but I think people need to start calling things for what they are. I would even go as far as to say that traditional Value Investing (stemming from Graham's teachings) has more of trading than investing. I mean the "arbitrage" branch of trading, not the "market timing" one. In fact, the author himself likens value investing to option arbitrage trading in one of the early chapters. Any stock picking strategy that attempts to screen thousands of stocks based on a few ratios is playing an statistical game. In this case, the bet is that most of the deep value stocks chosen by this screen will end up reverting to the mean, catching up with their intrinsic value (however that was defined by the analyst). The overall strategy seems to be based on solid concepts and empirical evidence. However, there are at least 3 things that concern me. First, it's not the same thing to buy a company at a price below its liquidation value than to choose stocks based on valuation metrics that indicate that the stock is trading below their intrinsic value. Intrinsic Value is not the same as Liquidation Value. It's one thing to buy a company, liquidate it, and take a sure profit. It's a whole different story to buy a stock at a market price below its estimated intrinsic value and then hope that the market eventually validates that valuation. Second, intrinsic value is not an objective measure. It is subject to the analyst's opinion. In this case, the author uses EBIT/EV as the best estimator of a company's intrinsic value. He presents solid empirical evidence to support his choice and I've seen other authors picking the same metric. However, the process by which this metric is selected is again statistical. It worked most of the times for the time period under analysis. It also worked better than other metrics proposed. This does not mean it will work forever and under any circumstances. Different market scenarios may favor the use of different ratios. Given the nature of these deep value strategies, you can expect all of them to perform well after a prolonged bear market -when there are many more "bargains" available. In such an environment, the choice of the specific valuation method may be less relevant than just "seizing the moment". Finally, there might be an easier way to do all this. In the end, this is just another long equity, short volatility strategy. Does it beat the S&P 500? Apparently, it does. What's its correlation to the overall equity market? Probably, very high. So, even when this strategy may have an edge, if you build your deep value portfolio at the peak of a bull market, you're probably going to lose a lot when the market starts correcting. Again, this is because you're still 100% long equities. What if instead you combined it with other assets that are not correlated to equities like treasuries, gold, or other commodities? Nowadays, you can easily buy ETFs on many different asset classes, which allows building up portfolios with exposure to different risk factors. The best part is that this strategy is really easy to implement and maintain! I would like to see how this Deep Value strategy fares versus a diversified passive portfolio containing equities, treasuries, and gold (using let's say a 75/20/5 allocation policy). This is so easy to implement that you may even want use the extra time to perfect this strategy. For example, you could use Value Investing principles to guide the process by which you could adjust your factor exposure more dynamically, based on market conditions. In this case, you may even still find yourself dedicating less time to this strategy than to a deep value, stock screening one. This is the direction in which the asset management industry is moving. ETFs and passive exposure are killing the active management industry. Stock picking funds will eventually disappear.4- I think the author's dismissal of quality stocks is based on an incorrect analysis. First of all, quality business are those that consistently generate high ROICs, not just during last year. Ranking stocks by last year’s ROIC does not necessarily render quality business at the top. As the author states, companies’ fundamentals are mean reverting. However, that’s the case for mediocre business, not quality ones. The author should have used some measure of high ROIC sustained throughout at least 3 years to find quality. Secondly, the author resets his portfolio annually. Which means that most of his “quality” stocks will be replaced by new ones every year. Again, this arises from the fact that the author ranks his quality stocks using last year’s ROIC instead of the cumulative ROIC over time. The problem is that true high ROIC, quality companies need time (years) to compound returns and deliver stellar results. There's no way the author could have successfully tested the performance of quality stocks using the approach he uses. This is to a great extent due to the fact that quality stocks are not susceptible to the type of systematic trading the author seems to favor.Ok, after all this I feel like removing one star. However, 3 stars for a book like this seems too low. It's evident that the author did a lot of work and put a lot of effort to create this book. 3 stars would be unfair. This is a quality book (no pun intended) and it deserves 4 stars.Overall, a very good read. Just keep a critical mindset as the author presents his arguments/evidence.