πŸ” Where to Consistently Find UNDERVALUED Stocks (by 50%+ πŸ“ˆ)!


Joel Greenblatt’s hedge fund was open to
the public for 10 years. Its average annual return was over 50%. In his brilliant book, “You Can Be A Stock
Market Genius,” he reveals where he found and how he selected the stocks that allowed
him to be so consistently successful. Two of his strategies are particularly interesting
and super easy to understand and implement. I can’t wait for you to get started… Hey. Thanks for being here. I hope you love this stuff as much as I do,
cause there are some amazing opportunities out there (like these) to build your rapidly-growing,
highly-diversified net worth. And, one video at a time, that’s what I’m
sharing with you here on this channel. Greenblatt, in his book, dives into mergers,
rights offerings, restructurings, and several other very specific occurrences in the world
of business and stocks, that create amazing opportunities for the disciplined, research-focused
investor. And if that sounds like something you’re interested
in—and since your here, watching this video, I can only assume…—then you should probably
get yourself a copy. I’ve linked out to it in the description
below. You won’t be disappointed. Cause these opportunities aren’t going away
any time soon—you’ll see what I mean as we dive in… My two favorites from the book are spinoffs
and bankruptcies. Sometimes a business grows large and diversified
enough that it makes sense to split up. This could be because the business made some
bad investments and wants a way to offload them. Or it could be because part of the company
is so different from the principal line of business, that both parts would just be better
off on their own. Like when Phillip Morris was spun off of Altria
in 2008, Chipotle of McDonald’s in 2013, PayPal of Ebay in 2015. What started as a small part of a much larger
company had grown to the point that it couldn’t thrive quite as well unless it was allowed
to go off on its own. Well, when something like this happens, there
is some inevitable (and understandable) confusion in the investment world. If the spun-off entity is small enough there
is often indiscriminate selling from large holders of the stock. This can cause the price per share to plummet,
which causes other investors who were on the fence about the newly formed entity to also
jump ship further perpetuating the problem. There are several reasons this happens and
those reasons aren’t going away. Think about this from the perspective of the
manager of a large mutual or pension fund: You and your team invested in the original
company after much research and due diligence. You have your specific, calculated reasons
for investing in the larger company. But this new, spin-off was just a small part
of that larger original company. It may not have even come up in your original
research. As a disciplined fund manager, this doesn’t
fit into your calculated approach. So you just sell. Or what if your fund specializes in a specific
industry, and the newly formed entity is actually in a very different industry—like if a car
company spins off its credit arm into a new independent financial firm. It doesn’t make sense at all for you to
hold on. So you just sell. Or what if your fund has rules—as many large
funds do—about the size of the companies in which you can invest. By your own rules, you may not be allowed
to continue to hold the smaller spun-off company. So you just sell. Regardless of the fundamentals. You don’t care. It doesn’t matter. You. Just. Sell. As many large funds with their large share
count exit, this pressure drives prices down, creating opportunities for you and me. Greenblatt sites a relatively old statistic
which is still interesting to consider. He says, “One study completed at Penn State,
covering a 25 year period ending in 1988, found that stocks of spinoff companies outperformed
their industry peers and the Standard & Poor’s 500 by about 10% per year in their first 3
years of independence.” Now, of course, this is just what happened
in history, and doesn’t predict what will happen in the future. But it gives you some useful perspective on
the potential found within this relatively small pool of stocks. To be clear, I definitely don’t recommend
you just buy up every single spinoff company without further consideration. As always, due diligence, analytical research
are still recommended and probably required for long-term success. But this understanding of spinoffs and how
they work in the market provides a compelling starting point for your undervalued-stock
discovery process. Now let’s talk about bankruptcies: Imagine you’re researching a company that
appears cheap. You’re trying to figure out why and then
you find it: it went through bankruptcy. How does that make you feel? For most, that’s the end of their research. They have no interest in dealing with a company
with such a checkered past. But this is a perfect example of the type
of opportunity Warren Buffett was referring to when he said: Be Fearful When Others Are
Greedy and Greedy When Others Are Fearful. Again, of course, I’m not suggesting you
just buy up every company with a past bankruptcy. But if your detailed analysis suggests that
the company is undervalued (based on its merits and prospects today), it may be other people’s
fear suppressing the price. Others’ fear can be the disciplined investors’—our—opportunity. Greenblatt mentions four reasons a restructured
yet solid company might see depressed valuations: [1] Again, indiscriminate selling, this time
from banks, bondholders, and previous creditors. He says, “…there is ample reason to believe
that the new holders of the common stock are not interested in being long-term shareholders. Due to an unfortunate set of circumstances,
these former creditors got stuck with an unwanted investment. Consequently, it makes sense that they would
be anxious and willing sellers.” [2] Next you have what are called vulture
investors. They will occasionally invest in a bankrupt
company. They’re looking for a surge in share price
after the restructuring is complete, which often happens. And then they leave, pushing the price down. [3] Then, think about Wall Street, analysts
there don’t get paid to sell post-bankruptcy stocks like they do with IPOs. He says, “Between the ephemeral shareholder
base and the lack of Wall Street attention, it may take quite a while for the price of
a stock issued through the bankruptcy process to accurately reflect a company’s prospects.” [4] Finally, a low market value stock may
take time to attract the attention of big market players, as they likely could not take
a big enough position to justify the research time and expense. In this video, we discuss the opportunity
this fact alone creates for you and me across all low market value stocks. Greenblatt reiterates, “These situations are
truly orphaned and may trade cheaply for some time before they are discovered.” I chronicled my first experience with the
stock of a previously-bankrupt company in an article I wrote for Seeking Alpha. I’ll link to it below. Published August 10th, 2016, with shares trading
around $4.30, I presented this very case. I was able to identify the indiscriminate
selling that was taking place by the six banks who were left holding roughly 7% of the shares
outstanding. They hadn’t been allowed to sell their shares
until earlier that year (several years after the company emerged from bankruptcy). Obviously, they didn’t really want to be
there. Think about the downward pressure with that
massive sell-off looming. The company’s fundamentals were still sound,
despite its low share price. So my thesis was that one of the main reasons
for this suppressed price was the banks. I suspected that through abnormally large
trading volume, you’d be able to see when they were exiting their positions, thus removing
that pressure. And that’s exactly what happened. Today, as of this recording, a year and a
half later, it trades around $15. When you can understand what’s going on
behind the scenes, specifically the psychology driving other market players, you’ll begin
to see these opportunities. I’m not saying they’re common; I’m not
saying you (or I) will be right every time. I’m saying they exist and will continue
to exist. The first step in being able to identify them
is an intimate understanding of those occurrences, so you know what to watch for. A great way for you to do that—where I first
began developing my understanding of special situations like these—is through Greenblatt’s
book directly. Again, I’ll link to it in the description. If these strategies interest you, I’d highly
recommend it. The other way you could learn more about these
strategies is for me to continue making videos about them. What do you think? Would you like to dive deeper into either
of these strategies? Would you like to be introduced to more? I want this channel to be as helpful for you
as possible, so be sure to let me know in the comments. If you get to where you’re successfully
implementing these strategies, that’s one of the ways you can build your rapidly-growing,
highly-diversified net worth. So if you’d like to continue on that path,
don’t forget to subscribe and click the bell. Leave me a like if this was helpful. I can’t wait to see you in the comments
and in another video. Take care.

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