The Five Keys to Value Investing by Dennis Jean-Jacques
This is an excellent follow-on reading to QualityOfEarnings. It helps to have a bit of accounting, but it's still good, regardless. In addition to the normal value investing "margin of safety" arguments, he covers Red Flags and Catalysts in investing:
He also covers catalysts for changes in company value:
- Revenue Recognition is different for this company than for the rest of the industry.
- Management's incentives are based extensively on increasing earnings per share, and the accounting treatments are controlled by management.
- Unjustified changes to accounting policies.
- Special structures/deals built primarily to increase earnings.
- Letter to Shareholders does not adequately disclose how the firm makes money.
- Management incompletely discusses prior poor results.
- Abnormal inventory growth relative to sales.
- Net Income is growing faster than cash flow from operations
- Unexpected write-offs or charge-offs.
- Large fourth quarter adjustments
- Lends money to customers, or has equity stake in customers.
- New Management installed.
- New corporate strategy
- New Product strategies
- Change in Operational efficiency
- Cutting costs (equipment, WACC)
- Sustained tax reduction
- Reducing working capital needs
- Share buybacks
- Spin-offs, equity carve-outs, etc.
- Asset sales
- Liquidation: full or partial
- Shareholder Activists
- Industry merger activity
- Fade out of an adverse catalyst