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Jonathan Webb
Jonathan Webb
Articles (6)  | Author's Website |

Fish Where the Fish Are: How to Find Bargins

January 20, 2014 | About:

In an interview with Warren Buffett (Trades, Portfolio) in 1993, Adam Smith, author of "Supermoney," asked how the small investor can find good investment ideas.

Warren Buffett (Trades, Portfolio): I’d tell him to do exactly what I did 40-odd years ago, which is to learn about every company in the United States that has publicly traded securities, and that bank of knowledge will do him or her terrific good over time.

Adam Smith: But there are 27,000 public companies.

Warren Buffett (Trades, Portfolio): Well, start with the As. 

It’s all well and good to talk about how and when to buy a stock, but if we don’t know how to find them what's the point?

About 90% of the investment books I’ve read don’t deal with the search process very much (as in at all) so for a self-taught person such as myself it is hard trying to find ways to find the bargains that everyone always talks about.

“Fish where the fish are.” – Bruce Greenwald

That quote pretty much sums up my investment thought process: Fish where the fish are and don’t overpay for the bait. In other words, look at places that over the long term outperform the marke. For example, net-nets, or spin-offs. Then it's just a matter of picking the best fish out of the bunch.

Where Are the Fish? 

Net-nets, spin-offs, mergers, dividend payers and the Magic Formula stock screen are all ponds that you can fish in for big returns.

How to Find These Ponds? 

Net-nets: Net-nets are an endangered species. More than any other pond it’s getting harder and harder to find suitable net-nets here in America, although if you can find a group that is selling for two-thirds below NCAV  my suggestion is to scoop them up.

Old School Value has two screens that you can use to find net-nets. One screen is based on NCAV, the other on NNWC. NNWC is an even more conservative version of NCAV. Basically, NNWC is base line, and NNWC is liquidation. I suggest using the NNWC screen. If a company is trading below NNWC, it is more likely that it is trading at 75% NCAV. (I will also consider companies trading 50% below NCAV if insider ownership is higher than 25%.) The list is updated every five minutes.

Spin-offs: Spin-offs are my favorite pond to fish in. Most of the time the market simply doesn’t know exactly how to (or won't) value the spin-off, making for some potentially sweet gains! You just have to know how to tell an elephant from a mouse.

There are two ways I search for spin-offs: The first way is to swing over to a great site, Stock Spinoffs. This site is great because it tracks a lot of the spin-off news that most simply don’t worry about. It's pretty much my CNN for spin-offs. I love this site.

The other way I search spin-offs, (I consider this to be more like true fishing) is to go to the Edgar site Stock Spin-Off List and just ”start with the A’s.” It’s not the most efficient way to go, but it gets the job done. Also it allows you to see the company-taken steps actually to spin off the division.

Mergers and acquisitions: A lot of people, including myself, think that investing in mergers is a high-risk endeavor. Joel Greenblatt (Trades, Portfolio) had this to say in regards to mergers and acquisitions:

"It aint over till it’s over – too many things have to go right too often.”

He goes on to say:

“However, you should be able to make a reasonable return – that’s because despite everything that can go wrong, most deals close."

Risk arbitrage is a dangerous game, if you don’t know how to play. Contrary to belief, most risk arbitrage plays happen after the deal has been announced.  I won't dig into how to take actual advantage of risk arbitrage as this is about search strategies. However, I will link to my risk arbitrage worksheet.

Now to find these meager announcements one simply has to read the paper, or at least part of the paper, specifically the mergers and acquisitions section of the New York Times. And of course, I have a link for you: Deal Book Mergers & Acquisitions. It's simple: Read, research, do your due diligence, repeat.

Magic Formula: This is probably the simplest of my invest strategies. Joel Greenblatt (Trades, Portfolio), invented a formula that outperforms over the long term (over 20 years). He outlined it in his book, “The Little Book That Still Beats the Market.” To summarize, the book outlines a screen that employs: Earnings Yield = EBIT / Enterprise Value and Return on Capital = EBIT / (Net Fixed Assets + Working Capital), to give a list of high performing, undervalued companies. Nothing could be more simple. Go to the website, Magic Formula Investing, enter your info, (don’t worry, it's free, and they never send emails or spam) and use the screen and pick the stocks you want to own.

If you are feeling “picky” you can use this screen as a starting point to dig deeper into stocks. Doing this fits into our thought process: "Fish where the fish are, and find the best fish in the pond.”

Any questions?

About the author:

Jonathan Webb
I am a private investor who happens to enjoy sports, movies, and art.

Visit Jonathan Webb's Website

Rating: 3.8/5 (22 votes)


Batbeer2 premium member - 3 years ago

>> Any questions?

Why would any of the other methods be better than starting with the A's?


For the sake of this discussion, let's say it takes about 10 minutes to see if you understand a business. If you do, then it probably takes 20 hours to figure out its intrinsic value and see if it is well-managed. If it takes you longer, then maybe you didn't understand that business in the first place.

So if you're dumb like me, you'll have worked your way through the Russel 2000 in three months. You may have found 2 stocks that are understandable, well-managed and cheap.

That rate of finding ideas may not be enough for a trader but IMHO, it is enough for an investor.

The best part is that the knowledge is cumulative. You will find dozens of stocks that you like but that are too expensive for now. That is the bit that will serve you well over your lifetime. 

Just some thoughts.



Bradlewski premium member - 3 years ago

Interesting tactic. "Fish where the fish are."

I must say, Batbeer2 has a great start with the "As"

I would add this:

I recall the old adge: Feed a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.

Well, my grandfather imprinted a valuable concept that explains the art of fishing to me many years ago: Feed a shark a fish and you feed him for a day. Teach a shark how to catch fishermen and you feed him for a lifeime.

Fishing comes at a price. Being a shark adds the value of coattailing and if done properly (via Batbeer2's method above), gets you more nutritional value from the best fish that support your intrinsic appetite.


Beltrancaceres - 3 years ago    Report SPAM


Beltrancaceres - 3 years ago    Report SPAM

Perhaps, after Global Stocks, short interest -- Gurufocus's next project is to collate special situations? (merger arbs, spin offs, tenders, liquidations, etc.)

I'm sure a lot is interested in that.

Gigo07 - 3 years ago    Report SPAM

are these stocks what you ment on nnwc ?? are they cheep ??h

thanks !! for your reply

Ratio Analyst Recom


GAI Global-Tech Advanced Innovations Inc. Industrial Goods Industrial Electrical Equipment Hong Kong 12/23/2013 $6.55 $20.06 4,500 -63% 10% 0 0 0 0.27 0.27 0.57 0.00 0% 0% -$1.41 0% 0% 16% 0% 15.1% -3.4% -4.8% -6.4% 2.3 0.00% 0.08% 10.70% -10.90% -4.90% 0% 0% 9% 0.2 0


GIGM GigaMedia Ltd. Technology Multimedia & Graphics Software Taiwan 11/13/2013 $1.00 $50.72 27,493 -19% 8% 0 0 0 2.55 0.44 0.69 0.00 0% 0% -$0.22 79.8% 0% -19.1% 10% -28.9% -7.5% -8.7% -17.8% 6.7 0.00% 0.00% 59.80% -25.60% -54.30% 25% 8% 5% 0.2 3


STRI STR Holdings, Inc. Consumer Goods Rubber & Plastics USA 11/12/2013 $1.53 $57.54 85,079 -60% 13% 0 0 0 1.4 0.50 0.93 0.00 0% 0% -$3.34 -433.3% 34.3% -11.44% 20% -11.3% -98.4% -113.8% -170.5% 7.4 0.00% 0.00% -17.50% -67.70% 0.00% 2% -76% 83% 1.5 3


APWC Asia Pacific Wire & Cable Corp. Ltd. Industrial Goods Industrial Electrical Equipment Taiwan 12/31/2013 $3.20 $43.95 13,308 -27% 36% 6.36 0 0 0.1 0.28 0.71 2.05 0% 0% $0.5 261.2% 0% 17.7% 0% -2% 1.8% 4.3% 7% 2.4 0.00% 0.35% 10.60% 3.90% 1.50% 0% 0% 16% 0.5 0


PTNT Internet Patents Corporation Services Business Services USA 4/1/2013 $3.10 $24.11 600 -33% 6% 0 0 0 0 0.78 0.78 0.00 0% 0% -$0.37 35.7% 0% -22.7% 0% 0% -9.1% -9.4% 0% 46.0 0.00% 0.00% 0.00% 0.00% 0.00% 57% 0% 33% 0.1 0


MSN Emerson Radio Corp. Consumer Goods Electronic Equipment USA 11/18/2013 $2.22 $62.4 62,608 -3% 77% 32.86 0 0 0.69 0.86 0.93 4.22 0% 0% $0.07 -43.6% 0% 21.7% 0% -10.5% 2.3% 2.8% 7.9% 8.3 0.00% 0.00% 15.10% 4.70% 2.20% 66% 0% 13% 0.2 0


EDS Exceed Company Ltd. Consumer Goods Textile - Apparel Footwear & Accessories Hong Kong 11/18/2013 $1.67 $55.86 14,614 -9% 58% 5.12 0 0.85 0.22 0.16 0.39 0.18 0% 0% $0.33 -55.5% 0% 0% 6% 420.7% 3% 3.2% 9.1% 12.3 0.02% 0.03% 27.20% 5.60% 4.30% 35% 0% 4% 0.0 1


DXR Daxor Corp. Healthcare Medical Instruments & Supplies USA 9/16/2013 $6.78 $27.74 2,283 -20% 0% 2.15 0 0 12.61 0.90 0.00 0.00 2.97% 8.4% $3.14 117.1% 0% -34.1% 0% 4.8% 14.9% 28.4% 16.2% 0.0 0.00% 0.00% 0.00% 81.80% 0.00% 76% 0% 6% 0.1 0


PRLS Peerless Systems Corp. Services Computers Wholesale USA 9/13/2013 $3.62 $9.5 3,364 -8% 14% 0 0 0 2.5 0.77 0.85 5.59 0% 0% -$0.12 32.5% 0% -1.1% 0% -38.5% -2.9% -3.1% 12.2% 32.5 0.00% 0.00% 89.50% 34.20% -10.50% 19% -4% 7% 1.2 0


GENC Gencor Industries Inc. Industrial Goods Farm & Construction Machinery USA 12/9/

Jtdaniel premium member - 3 years ago
I actually did a "start with the A's" exercise in the summer of 2001, after spending a weekend reading Timothy Vick's "How to Pick Stocks Like Warren Buffett (Trades, Portfolio)". There was something about Vick's phrase "annuity stream of earnings" that just grabbed me and has guided my investment process ever since.

I spent about a month of evenings leafing through the three S&P stock guides - S&P 500, Mid-Cap 400, and Small Cap 600. I first identified the companies with 10 years of consistent earnings growth. This eliminated the vast majority of stocks in all three books. I then screened the keepers and confirmed that companies with an annuity stream of earnings also tend to have manageable debt and high investment returns. This process left a remnant of superior businesses that I could at least learn to understand. That was the pond I wanted to fish in.

The problem in those days was valuation. Of those 1500 stocks, I found only Phillip Morris (now Altria) and Hormel as suitable in both quality and value. I bought Hormel and now only wish I had bought both. Sure enough, by 2003, there were more annuity stream values than I could buy.

BertG - 3 years ago    Report SPAM

Valuable interview, but I wonder if it actually happend in 1993 since Old School Value was only founded in 2007. Their site seems to be quite promising too!

Jtdaniel premium member - 3 years ago

No surprise, but Google is a great source for information on arbitrage opportunities. I receive free, daily email updates from Google on mergers, acquisitions and tender offers.

Ney123456789 - 2 years ago    Report SPAM

"Basically, NNWC is base line, and NNWC is liquidation".. did you mean NCAV is the baseline, right?

Jonwebb - 2 years ago    Report SPAM

yes thats what I mean, ney123456789. sorry for the typo.

Skipkapur - 2 years ago    Report SPAM

great article. thank you.

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