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BM409-04 Valuation 5 - Net Nets and Liquidation Value 2011-09-08

BM409-04 Valuation 5 - Net Nets and Liquidation Value 2011-09-08

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1 Valuation 5: Acquisition/Breakup: Liquidation Value and Net-Nets Special thanks to JT Davis of Silver Point Capital for sharing this material with us BM 409 Investment Management Academy
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2 Objectives A. Understand our competitive disadvantages an advantages B. Understand our framework for valuing Net- nets
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3 Research tells us that you get higher risk adjusted returns in three key situations: 1. Value situations 2. Smaller situations 3. When you buy at a discount to asset value (even versus earnings) Can we use this research to our advantage in evaluating equities? Net/Net Investing
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4 What are our competitive disadvantages with our asset management/academy program? Size . We are too small to trade certain asset classes (bank debt, CDS, derivatives, futures, etc.) Information . While we have some good tools, we don't have access to the extensive research analysts, management, data, etc. of other private firms Deal Sourcing . We are not in the flow of available deals (we are just too small) Experience and Expertise. We have yet to develop the understanding and skills of evaluating different types of industries and companies A. Understand Our Competitive Disadvantages and Advantages
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5 What are our competitive advantages? Small Size . Our small size let's us get into small situations that most sophisticated investors cannot consider Size of Analyst Force . With more analysts (and the class reputation improving), it allows us to see more things, churn through more ideas, read more financial statements , and evaluate more companies Stable Capital Base . We are not concerned about money flows due to performance issues. This allows us to think for the long-term Our Competitive Advantages
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6 Are their different ways to think about valuation?
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