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Author: Grakf One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 213752  
Subject: Pondering value Date: 5/29/2009 5:23 PM
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UK fool here:

I`ve been re reading a lot of my old books recently which I tend to do if there are crashes, to remind me what I`m supposed to be doing.

Main books i`ve read are,

Dreman contrarian strategies.
Brandes value today
What Works on Wall Street
John Neff
The II

These are thoughts that have been flagged up from reading:

Firstly

I`m interested if there is any research which looks at intangibles and book valuations.

The reason I ask is as follows

I can find many companies trading at significant discount to tangible book value with debt to equity below 1. At the moment however this is leading to investment in predominantly property oil and mining companies etc.

I wanted to invest in more sectors so began to look at other sectors such as consultancy firms in the services sector, eg Colliers CRE or White Young Green listed on AIM are good examples. The low price to book valuations of these companies are based on intangible assets. I have found that picking them up when they appear in the lowest decile on my screener has proved very profitable. eg Colliers from 13p to 30p now and WHY 7p to 30p now. The reason I used this value metric was that dividends have been slashed and earnings severely marked down so leading to very high PER etc making them impossible to value on normal metrics, a second measure I used to back up low PTB was low price to sales which has been less affected by the recession.

So my main question is.

Would you use low P/B for intangibles? or is my good fortune a fluke, better to use low price to sales and debt to equity below 1 for such firms?

Other points.

More generally I like to follow the approach of Dreman and Taleb, that we cannot predict the future and therefore earnings etc, I am really fascinated by the psychological side of investing and believe that by solely investing in conservatively financed companies trading on low price to book / sales ratios I will be able to out perform the market in the longer term. I have seen so many low PER and high dividend stock prices collapse that it has made me cautious of relying on these metrics.

I recently viewed an interview with Walter Schloss and in it he emphasised low price and book and low debt many times. I have not been able to find too many articles about Walter online, do you know if this is the cornerstone of his approach and it is using this approach that he has been able to produce returns of 15% per annum with a diversified portfolio? I wonder what he thinks about intangibles,

What do you think of financials and how to value them? they have been a minefield over the last two years, continually looking to raise additional equity. I`m amazed by how leveraged they are and how a small write down in their massive asset base can wipe out the shareholder equity. I have come to the conclusion that they are impossible to value and it might be better to avoid them altogether. Citi group and AIG spring to mind and have been absolute disasters. I notice Dreman and Brandes doubled up on the way down and have suffered massive losses in their portfolios in their investor newsletters they basically say they took their eye off the ball and invested in stuff they did not understand (complexity and leverage).
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