Analysis: 67% gains from value investing in TSH

This article appeared a few days ago on big fat purse.

How Value Investing Felt Like, Before A 67% Gain

According to their article, they had invested in the company using the Conservative Net Asset Value (CNAV) strategy. While it is a good strategy for value investing, here are the reasons why we wouldn’t have adopted the strategy:

It was the best case scenario.

They were lucky that the management choose to get back their cash and unlock value for the shareholders. Ultimately it benefited the shareholder in this case, but how many company would be willing to liquidate all their assets (which are used to make them money) and return the money to shareholders?

Imagine a blacksmith with a declining business. Would he resort to selling his forge and equipment and return money to all the people who invested in him? Or more likely, would he try and tide through this downturn and do something for the business he built up over the years?

That’s why we rarely see companies converted into cash company, and even when we do, the situation would have gotten bad enough such that shareholders may not get back much of their investment.

The company did not perform well enough for us to invest in.

As business owners, we only invest in business that has the potential and track record of growth.


The company has failed to show that they are able to increase profits. Even worse, they seem to be unable to remain profitable.


From the figures, we believed that the management was struggling in this business environment. Closing the company down may have been a good idea.

The value may have never realized.

Did you just pay $0.50 for a company worth $1 on paper and hope they close down for you to get back $1?  Or hope the market will spot that the company is worth $1, and be willing to pay $1 for it?

That’s how value investing works. And it sounds weird to us.

It was possible that the share prices never recovered. Without constant good news of higher profits, few people would be interested to buy the stock.


In conclusion

In this case, value investing worked because the management choose to unlock the value within the company. Values are usually locked in assets like land, buildings etc which may not be en-cashed unless as a last resort.

If you are doing value investing, you have to limit your risk and have a portfolio with multiple undervalued stocks (read: over 20) to increase your probability of return. It works, but its a strategy that requires patients and capital.

Ultimately, both value and growth investing depends on a single, crucial factor: the management. If given a choice, we would prefer a strong management that can give us good news every year if we are paying 10x P/E for a stock.


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