A Guide to Asset Plays

Deep dive into a variety of asset plays; case studies and actionable ideas included.

We’re back!

This is a multi-part series covering my favorite investment themes (an ode to Peter Lynch’s six “story types”). Today, I’m looking at asset plays.

This is part 9 covering the 15 investment themes I look at frequently. My goal is to improve pattern recognition and pull out the characteristics of the best (and worst) ideas in each category. Plenty of case studies and actionable ideas included.

As a recap, we’ve already covered:

• Part 1 — beaten down shares (my favorite source of idea generation)

• Part 2 — spin-offs (my favorite source for actionable investments) ($)

• Part 3 — post-reorg equities (infrequent but actionable)

• Part 4 — management changes (good ones are uncommon but actionable) ($)

• Part 5 — insider buying (a checklist of what to watch for)

• Part 6 — activist investing (highly actionable source of investments)

• Part 7 — public LBO & deleveraging stories (volatile ideas good for the watchlist)

• Part 8 — inflection investing (the crown jewel for big returns) ($)

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Asset Plays

An overarching theme with these asset-based ideas is that there’s some undiscovered value hiding somewhere in the business or on the balance sheet. It could be a hidden gem segment/division or a 40-year old property marked at cost.

Another theme here is “what’s the catalyst?”

Typically, an undiscovered asset tucked in the back corner of a balance sheet doesn’t become “priced into” a stock until there’s some monetization or realization event. Many value investors have gone to the graveyard known as sum-of-the-parts (SOTP) investing.

To make things more complicated, there are subtle differences in the sub-genres of asset-based investing. Here’s my list (I’ll comment on my favorites at the end):

1. Sum-of-the-parts (SOTP)

2. Stub shares

3. Hidden assets

4. Low P/B

5. Net-nets

6. Liquidations

7. Cash shells

8. Balance sheet transformations