The Business of Value Investing.pdf

196 The Business of Value Investing

Case Study #1: Sunrise Senior Living. Back in 2002, this pro-

vider of managed care for the elderly was showing strength

in an industry that appeared to be weakening. The compa-

ny ’ s business strategy was twofold: (1) by developing and

selling premium assisted living properties, Sunrise was mak-

ing profit on real estate sales and (2) managing assisted

living properties, thus using its expertise to provide a recur-

ring revenue stream. A closer look at both of these aspects

of the business revealed great value.

Case Study #2: Ternium Steel. As one of the most profitable

steel companies in the world, Ternium was generating enor-

mous levels of free cash flow. But because the company had

operations in Venezuela, Mr. Market overreacted and dis-

counted the share price above and beyond what the com-

pany would be worth without any business in Venezuela.

Case Study #3: Mueller Water Company Arbitrage. Mueller

Water Company is a manufacturer and supplier of water

infrastructure products. However, this was an arbitrage

investment that was seeking to exploit a wide inefficiency

in value between Class A and B shares of Mueller and had

nothing to do with the actual operations of the business.

Keep in mind that some of these case studies took place in the

past and refl ect the environment and opportunity at that time;

these businesses may be quite different today with respect to size,

soundness, and management from how they were when the analysis

actually took place. What can be said unequivocally about the three

case studies is that they are, or were, actual investments that were

made by the author at various points in time.

In the investment management business, eating one ’ s own

cooking should be the standard, not the exception. Investment

managers who have their own capital invested alongside that of

their clients is a powerful sign of alignment of interests. Likewise,

I believe an author who is recommending an investment approach

should use examples in which he participated.

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