Monday, April 5, 2010

When the Babies Get Thrown Out With the Bathwater - Great Depression Value Investing

Following up on my review of Security Analysis, where I discussed the revulsion towards equities indicated by valuations at the - here are more specifics about the Great Depression deep value opportunities from a Forbes magazine article written by Ben Graham in 1932:

A study made at the Columbia University School of Business under the writer's direction, covering some 600 industrial companies listed on the New York Stock Exchange, disclosed that over 200 of them--or fully one out of three--have been selling at less than their net quick assets. Over fifty of them have sold for less than their cash and marketable securities alone.

Businesses have come to be valued in Wall Street on an entirely different basis from that applied to private enterprise. In good times the prices paid on the Stock Exchange were fantastically high, judged by ordinary business standards; and now, by the law of compensation, the assets of these same companies are suffering an equally fantastic undervaluation.
This is just amazing. I suppose that from now on, I can stop being so frustrated with the opacity and corruption in the market.

That behavior is going to set up some fantastic value investments, when the babies get thrown out with the bathwater.

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