Deep Value Play
Let me explain a Deep Value Play with a 36-month horizon:
- Key Characteristics:
- Significantly undervalued assets/business
- Complex or distressed situations
- Requires lengthy market recognition
- Major business/industry transformation needed
- Smaller position size due to long horizon
- Common Examples:
- Corporate restructurings
- Industry downcycle survivors
- Complex conglomerate breakups
- Post-bankruptcy reorganizations
- Asset-rich companies with poor operations
- Value Drivers:
- Asset value significantly above market price
- Hidden/underutilized assets
- Complex capital structures
- Industry cyclicality
- Management change potential
- Risk Management:
- Small position sizes (typically 2-5%)
- Regular thesis validation
- Monitoring for negative catalysts
- Industry cycle tracking
- Multiple scenario analysis
- Typical Catalysts:
- Complete business transformation
- Industry cycle turn
- Asset sales/spinoffs
- Management changes
- Capital structure reorganization
- Position Management:
- Monthly/quarterly review
- Patience through volatility
- Add to position selectively
- Long holding period required
- Exit when value realized
- Expected Outcomes:
- 50-200% return potential
- Asset value realization
- Business model transformation
- Industry position improvement
- Market recognition of value