The Manual of Ideas: a 2-in-1 Book Review


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This is a 2-in-1 joint book review by James DeMasi of Seraphin Group and Old School Value.

First, the Review by Seraphin Group

The Manual of Ideas

I pre-ordered my copy of The Manual of Ideas months before it was published.

I was already familiar with The Manual of Ideas website, along with sister sites Beyond Proxy and Greatinvestors.tv, so I knew that the basis of the book was the shared knowledge of great investors worldwide, as are the mentioned websites. I anxiously awaited the practicality of this book.

Right off the bat, the first chapter of this long-awaited read made me nervous.  I disappointedly began thinking that The Manual of Ideas may not be what I had anticipated.

The first chapter centered on the proper mentality and processes for being a successful investor.  The book covers those tenants well, but, personally, having been an investor for over fifteen years and having read more books than I can remember the last thing I was looking for was the philosophy of investing.

I am so fortunate that I didn’t stop there.

The next nine chapters are chock full of great, practical information. You will be hard pressed to read the entire book and not walk away with at least a couple of new ideas worth exploring, or to see some old thoughts in a new light.

Topics range from quantitatively screening for hidden assets, companies that can benefit from margin improvements, growth opportunities, and even managerial competence.  However, the book goes beyond quantitative screening, exploring proper uses and misuses of valuation methodologies, following super investors and managers, and finding value in small, micro-cap, and international equities.

To put it simply, this book nearly has it all.  I only wish there was a bit more depth on special situations.  However, Joel Greenblatt did such a good job covering special situations in You Can Be a Stock Market Genius that it would have just been recreating the wheel.

This will not be an easy read for new investors but experienced amateurs and professionals will both benefit from this resource.  I highly recommend it.

Additional Thoughts from Old School Value

Jae here.

To really break it down, the book is broken up into 9 pieces.

  1. Deep value stocks
  2. Sum of the parts analysis
  3. Magic formula investing
  4. Buying stocks held by gurus
  5. Tracking gurus
  6. Investing in small and unknown stocks
  7. Special situations like spin-offs
  8. High leveraged companies with high reward
  9. International stocks

It’s safe to say that I’ve done all 9 but prefer to leave out no.8 now.

As Jim mentioned in the above review, there is a lot to go through. I actually like investing philosophy related material. I can never have too many reminders on how to think about the market.

But the true value of the book comes from the middle and later pages.

If you look at my best investment books recommendation, all of them are practical and timeless. A hidden gem of a book, Quality of Earnings, is probably my favorite of the bunch and it is quite old, but it is still relevant today.

That’s the type of book that I recommend, and this book fits into that category. I know that 15 years later, I can pick up the same copy and apply the methods without worrying about whether it is a dated method.

The writing isn’t the easiest to read and it’s not for beginners. If I had to pick something to complain about, it would be that inexperienced investors will find it difficult to know which of the many methods to apply or start with.

It’s like a buffet really. It always takes a while to decide what to start with.

Overall, this is a highly recommended book.

Pick up a copy from Amazon today and read it over the holidays in preparation for next year.

 

 

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6 responses to “The Manual of Ideas: a 2-in-1 Book Review”

  1. Rob Urban says:

    I read the Manual of Ideas last month. It has some great ideas on finding value, assuming you can recognize it when you see it.

  2. that’s something no book can ever teach you properly 🙁

  3. Rob Urban says:

    Jun, maybe you can answer with your experience. When doing a DCF on a stock, why does no-one add in book value, tangible book, or liquidation value in addition to the DCF value? ignoring the assets makes no sense to me. If a company has negative FCF then on course you only look at the assets, but if this year FCF turns positive you would look at the FCF PLUS the assets. make sense? Even adding in full BV plus DCF at a 15% disc rate I’m finding most stocks are overvalued now. thanks. Rob

  4. This is a common question that I get. If you have time, here’s the link.
    http://www.oldschoolvalue.com/forum/discussion/comment/3042

    The short version is that when you do a DCF, the value of the assets is already included. The assets are the cash generators and so the DCF already factors this in. The only type of asset you need to include are the non-operational ones.

  5. Rob Urban says:

    Thanks for the info Jun. I however do believe the equity should be included, or at least the estimated liquidation value + DCF. Private companies are valued on TTM owner earnings X (multiplier) + assets – debt. I don’t think excluding equity and/or brand value hurts anything as long as your very conservative with your FCF estimates. I also never use the perpetuity value of FCF and rather go out 20 years at a standard 15% discount rate, so my DCF values are usually low to begin with.

  6. And that’s been the topic of many discussions because if you add the assets, you would be double counting. As mentioned in the link though, there would be two situations where you would or would not add assets. It if is an ongoing company, that you wouldn’t. If the company was being liquidated, then you can.

    With a stock, the value is based on an ongoing concern and so the value of the asset is already included in the DCF.

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