Those interested in managerial ownership and firm value may be interested in a study by Morck, Shleifer, Vishny. The abstract is below, but in summary, firm value increases as management ownership, and therefore alignment, increases from 0% to 5%. As ownership increases form 5% to 25% management entrenchment reduces firm value. Finally above 25% the alignment effect reasserts and firm value increases. It would be interesting to see any difference in how ownership was achieved, i.e. founders vs option thieves.

The convergence-of-interest hypothesis suggests that a firm’s market valuation should rise …

How much does profit does it take to recover from a loss?

The following advice is offered with Matrix Composites & Engineering Limited (MCE) owners in mind, but it applies to all value investors who are holding on to fully valued companies.
I offer this unsolicited advice as I believe there are a number of new “value” investors who are sitting on substantial gains in MCE and my view is they should book those gains and move on.

Is there a margin of safety at the current level? I think not, the only way to get see a decent MoS is to use a …

ROE is an excellent ratio, it’s one of the first financial ratios you should put in your tool-belt. The next step is to understand the three business levers that underpin ROE; profitability, asset turnover and leverage.

Look at companies as businesses with opportunities and risks and try to understand why their solvency, liquidity, profitability, valuation and activity ratios are as they are. To do that you need the story.

ValueHuntr has generously posted a 96 page pdf compilation of 40 papers originally written by Benjamin Graham into an easy-to-read book format. If you’re interested in long term investing and value investing then ValueHuntr’s compilation is a real treat.
Here are a few excerpts I enjoyed.
[On Efficient Markets:] I deny emphatically that because the market has all the information it needs to establish a correct price the prices it actually registers are in fact correct. … Descartes summed up the matter more than three centuries ago, when he wrote in his …

I ran a screen today looking for companies with good ROE and forward earnings growth. Here are the results. I searched for 20% average two year earnings growth and ROE above 20%.

Investing is about expectations. Look for companies where the expectations are too low. This is usually caused by pessimism, controversy, complexity or fear. This belief has been echoed over the ages and expressed in many ways by Ben Graham, Warren Buffett and other value investing luminaries. The idea is very simple, yet surprisingly hard for most investors to implement. Buy fear and sell greed!

“my opinion was that the market was more likely to go up…, but that it was preferable to short it…, because, in the event of its going down, it could go down a lot.”

M2 Telecommunications (MTU.AX) delivered strong results across their businesses in 2009-2010. With underlying EPS up 72% to 16.7cents on the back of the People Telecom acquisition and organic growth. 2011 forecasts were strong with underlying EPS targeted in the 20.7-22c range.
With the current price of $1.80 you’re buying earnings growth of 28% for a P/E multiple of 8.4, which is an appropriate multiple for a no-growth company. In others words, current buyers are getting all M2′s growth for free. Alternatively the market believes M2 is not going to grow in the future …