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Invest Like a Guru by Charlie Tian

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CHAPTER 2Deep-Value Investing and Its Inherent Problems

“Don't let the tall weeds cast a shadow on the beautiful flowers in your garden.”

—Steve Maraboli1

After the bursting of the tech bubble, many of the once high-flying tech stocks were sold off without regard to the price. By October 2002, the stock of Oplink, the fiber optics company I'd bought, dropped from its two-year-prior price of $250 to $4.5 a share (split adjusted). Concurrently, the company had the net cash per share of over $8, which means that if the company had ceased its operations, eliminated all its other assets, and distributed the cash to its shareholders, these shareholders would have almost immediately doubled their money. Therefore, at some point, even an originally poor investment can become a pretty good one if the price is right.

This is an example of deep-value investing, a strategy that focuses on buying the stocks of the company at a deep discount against the value of its assets. The approach was theorized by the founding father of value investing and the mentor of Warren Buffett, Benjamin Graham.2

Deep-Value Investing

The idea of deep-value investing is straightforward; it is simply “buying dollar bills for 40 cents,” as explained by Buffett, who in his early years experienced tremendous success practicing deep-value investing.3 Deep-value investors try to buy the stock of a company for a price that is discounted from the assessed value of the assets, then wait for the gap between the price and ...

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