Develop a Search Strategy 85metric in valuing fi nancial companies because their primary assets
are money, and $1 is worth $1. Unfortunately, when banks overdosed
on asset-backed securities and then used leverage to add more
potency, the comedown was deadly. We found out very quickly that
book value was not as solid as it once was.
The key when looking in unloved areas for bargains is to approach
the task with a healthy dose of skepticism. Realize that a “low” stock
price is not an indicator of value. The market proved this in 2008, when
stocks of seemingly invincible businesses that were down 70 percent
fell another 50 percent!
Falling stock prices and low valuation ratios are an excellent
source of ideas, but understand that among the value buys lie many
more value traps.Advanced Search Strategy
I use the heading “ Advanced Search Strategy ” reluctantly. The
search sources I outlined earlier are all used by the most sophisticated
and advanced investors in the business. Buffett, Lynch, and hundreds
of other pros use the Value Line Investment Survey. And searching
other investors ’ quarterly SEC fi lings has been a tried and true prac-
tice for decades.
The difference between a basic and an advanced search strat-
egy has nothing to do with the quality of the source or the level
of diffi culty in fi nding investments. Rather the difference between
the two can be explained by one word: time. The advanced search
strategy is nothing more than the devotion of countless hours
to looking at thousands of public companies and everything in
between. When asked how to fi nd stocks, Buffett once remarked
begin with the letter A and work your way down.^8 As humorous
as Buffett can be, he was not kidding in this instance. At the end
of the day, the only way you ’ re going to fi nd more investmentCH005.indd 85CH005.indd 85 9/2/09 11:08:07 AM9/2/09 11:08:07 AM