Deep Value

Written on February 28, 2015. Written by .

The thesis of this book is that the worst quality stocks have the best expected returns, as a portfolio. Even the these low-quality stocks have a much higher probability of going bankrupt individually, they also have a much higher probability of shooting up in price. So it sounds like a classic high volatility situation where higher risk earns you higher returns. But the author’s analysis indicates that as a portfolio, the lowest quality stocks actually have lower volatility on long time scales of several years. He recommends the acquirer’s multiple as a way to filter for value stocks. The book is also full of stories about activist investors, which isn’t very practical for most investors, but makes the book more enjoyable.

★★★★

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