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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