My favorite video game of all time is the Legend of Zelda. The Nintendo classic features Link – an Elf-like person – going on a quest to save Princess Zelda.
The original Nintendo graphics are relatively crude compared to the incredible production of today’s video game platforms.
Throughout the game, Link can occasionally discover hidden portals and rooms. And in them, he might receive this message. “It’s a Secret to Everybody.” There, Link can collect money and use it to buy upgrades throughout the game.
This line – “It’s a Secret to Everybody” – is iconic, a constant theme across future iterations of the series.
Characters in the game are constantly encouraging Link to keep a secret. There is a constant effort to hide their secrets – whatever they are.
In the world of investing, that theme is common. You ultimately hear about people who have niche or secret strategies to make money. And, of course, they never share them.
The reality is, I think it’s critical to share these stories. To make people money. To give them market-beating strategies. This shouldn’t be a secret. It should all be in the open.
So, let me share my favorite strategy with you. This isn’t between us. Tell everyone you know.
The Sum of the Parts
People say that Ben Graham and Warren Buffett are the greatest value investors in the world. In my opinion, it’s Danny DeVito.
Wait, what?
Danny DeVito played a character called Larry the Liquidator in the 1980s comedy “Other People’s Money.”
In the film, DeVito is a shrewd investment manager who is always looking for stocks that are on sale. And he turns his focus to a company called New England Wire and Cable.
In an iconic scene, Larry explains to the owner of the company that its stock should be trading at a much higher price.
Here’s how he analyzes the company…
This company has no debt. It has property and equipment worth $40 million. It owns a few other businesses worth $60 million. It also has about $25 million in working capital. There are no lawsuits. The pensions are fully funded.
That means the company is worth $125 million.
But to be safe he estimates the value, at effectively auction, would be about $100 million.
With four million shares outstanding, that means the stock should be worth $25.
But it’s trading for $10.
“That’s a $10 for a $25 item… what a sale,” he concludes.
Larry Stole the Idea
This idea isn’t new.
It’s been the value investing strategy of hedge funds like Jana Partners in its push for Yahoo! To sell its assets a few years back. It was central to the corporate raiding strategy of Carl Icahn.
And it’s one that is used time and time again during financial crises.
The most notable person who used this strategy was Commodore Vanderbilt, the architect of the Vanderbilt fortune. He knew back during the Panic of 1837 that railroad stocks were trading well below the sum of their parts.
The stock’s value was below the physical liquidation value of the rails, the ties, the switches, and all of the physical equipment. So, he bought them up during a panic and sold them back when the economy recovered. It was a Secret to so many investors…
And nearly 200 years later, it still works. It worked during the 2008 financial crisis. It worked during the short panics of 2018 and 2020. And it will work again today as we barrel toward a recession.
There are lots of companies in the energy and banking sector that are trading for well less than the sum of their parts.
And now is the time to start building positions in them. I’ve put together a short presentation about this value investing secret for you, right here.
This is the time – as the crisis is looming – to start buying up these assets.
Invest like Commodore. Invest like Larry the Liquidator. Invest like Carl Ican, Warren Buffett, Ben Graham, and others who have built incredible fortunes using this value investing secret.
It’s not a secret anymore. Go out and tell everyone. There is value in this market. And you can learn how to identify it, today.
To your wealth,
Garrett Baldwin
Market Momentum is Green
This was a tricky day in the market after the selloff from the stunning Consumer Confidence report at the University of Michigan. Next week, we have a critical earnings day around the regional banking sector that could set the tone for earnings season. Continue to exercise caution, even in positive conditions.
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
