This book review on "Deep Value Investing" by Jeroen Bos was written by The Broken Leg Investment Letter subscriber Jonas Åström. Jonas is a private investor from Stockholm, Sweden. Article image (creative commons) by Images Money, edited by Broken Leg Investing.
"Deep Value Investing" by Jeroen Bos is such a rare thing as an investing book focused on case studies. A very common problem with investment books is that they are too general and lack real examples, thus making investing appear to be too complicated and time consuming — so time consuming that most people give up and just buy something based on a gut feeling. Instead of investing time on analyzing stocks, people spend countless hours searching, comparing, and investigating their next $299 gadget purchase.
I’m shocked how often this happens. I have friends who literally spend days — sometimes even weeks — finding the cheapest and most optimal gadget, yet these same people spend all of five minutes deciding how to invest tens of thousands of dollars based solely on their gut feeling. These friends would benefit greatly from the insights found in "Deep Value Investing" by Jeroen Bos.
Why do I think “Deep Value Investing” would be a great read for them? Because they would be much better off adopting a net net strategy that is easy to understand and easy to carry out. If they spent the same time devising a net net strategy as they did purchasing their next high-tech gadget, they would find bargain shares that allow them to make a killing in the market, and they wouldn’t need to fret so long about the cost of the next gadget.
Who's the Bos?
Jeroen Bos is a Dutch investor living in London who runs a Deep Value Investments micro fund for Church House Investment Management. He starts the book by explaining how he chooses stocks for his investment fund by buying stocks with a discount to NCAV and with business models that are fundamentally strong and can adapt to changing conditions. This is where Mr. Bos distinguishes himself from other net net investors — he puts more emphasis on the business model and the market conditions. Mr. Bos writes how he likes companies that “are able to contract their operations before they really hit trouble, unlike (for example) manufacturers, who (have) far less flexibility: vast workforce, factories, supply chains, etc.” As a result, his favorite types of businesses are consultants and recruitment firms because of their ability to shrink quickly without burning too much money.
Investment Opportunities vs Investment Strategy
Most investment books start off by explaining the underlying theoretical investment strategy. This is not what Mr. Bos focuses on in the book. Instead, his focus is showing how he thinks about investment opportunities and providing insight not only into what to look for in companies, but also how and when to bend his own rules. A good example from the book is a company that may have a little too much debt to typically be considered a justifiable investment, but after doing a deep analysis of the loan’s structure, he goes ahead with a successful investment.
I get the feeling that Mr. Bos does not invest in net net stocks (or more correctly, close to net net) for the statistical returns they deliver. Few investment books focus as heavily on case studies as “Deep Value Investing” does, and for the first time, I found an investment idea from a book that I successfully invested in, making this book doubly valuable to me.
Of the 15 investment cases in the book, 13 result in successful investments while two end up as failures. It is great to read about someone else’s failures and the lessons they learned, but I think Mr. Bos could have done a better job describing his own lessons from the mistakes he made and what he has done to avoid similar mistakes in the future. It is rare to read investment failure confessions, and unfortunately, he misses a good opportunity to share his lessons.
“Deep Value Investing” also leaves out details on Mr. Bos’ sell strategy. He rushes through this section, saying that if the investment turns into a good business, he does not mind keeping the stock and revalues it according to its PE instead of NCAV. It would have been very interesting to learn more about how he thinks about his holding period and the trade-off between selling at NCAV and continuing to hold the stock.
There is research that indicates that it is better to use a mechanical investment strategy than trying to analyze an investment opportunity and overriding the mechanical strategy, and I can’t help thinking that this is the case for Mr. Bos. His performance since 2007 has not been great, and maybe it is his overriding basic net net strategy that has had a negative impact on his performance. However, it could also be the case that deep value investing simply has not been that profitable over the last 10 years.
“Deep Value Investing” by Jeroen Bos is a practically focused book that explains the art of net net value investing from the basics — even my gadget-hunting friends can start net net investing after reading the book. Seasoned investors who have read other deep value books before picking up “Deep Value Investing” will particularly benefit from the case studies. It is fascinating to gain access to an investor’s thinking, and because “Deep Value Investing” provides this insight, I very much recommend the book.
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