Treasure the Hidden Gems When Treasure Hunting in Value Land

 | Jul 07, 2017 | 11:00 AM EDT
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There's nothing like buying something, whether it's a stock or anything else, and discovering some hidden treasure.

A recent purchase of a classic yet relatively unknown 1975 baseball book, "E-6: The Diary of a Major League Shortstop" by Danny Thompson, yielded a small hidden treasure. The book, which chronicles the 1975 season of Minnesota Twins shortstop Thompson as he was battling leukemia no less, was signed inside by Thompson's teammate Eric Soderholm, who is mentioned frequently in the book. That little bonus was overlooked by the seller. While it does not make the book valuable, it was a nice find, especially for a baseball fan. That's nothing compared to a friend of mine, who purchased a book about Mark Twain in a used bookstore years ago, only to discover a handwritten letter by Twain contained inside. Years later, lightning struck twice when the same friend purchased a book signed by Richard Nixon under similar circumstances.

In all three cases, the sellers of these books overlooked the contents. That's what happens sometimes with stocks. Sellers give up on a name, for whatever reason, and offload them to the used bookstore, where value investors shop. We peruse through whatever inventory there is, looking for value of which the seller was unaware. Unfortunately, this process is not a simple as opening up a book and discovering valuable contents, as my friend did. It can be long, drawn-out process, and it does not always yield favorable results.

Value investors can suffer from the same behavioral finance biases that affect all investors. I know that I do from time to time. We can fall in love with an idea and jump to poorly thought-out conclusions that don't pan out. There are fine lines between conviction, patience and putting your head in the sand, and I've had plenty of experience with each.

I've owned one asset-rich pink-sheet name (farming, land, water assets) in particular for more than a decade-- a somewhat well-researched idea with extremely valuable assets conceivably worth multiples of the current price, at least in my view. The problem is, short of an asset sale, something that would convert the assets into cash, or the recognition by other investors of the true value, this name may trade sideways forever and never pan out as I believed it should. Still, I have conviction in the idea, perhaps foolishly. Although I have made some money on it over the years, it pales in comparison to what I believe the assets really may be worth. Most investors would have bailed by now, and we'll ultimately see if I was a fool (it would not be the first time) or genius.

Treasure hunting in value land can be very rewarding, and surprising as it may seem, it is not all about financial gains. There is a certain sense of satisfaction that comes along with spotting opportunity that few others recognize and seeing it work out. That was my experience with Bob Evans Farms Inc. BOBE recently. The gains were certainly nice, but the sense of satisfaction perhaps even better. Unfortunately, for every Bob Evans, there is a Ruby Tuesday Inc. RT, which I still hold.

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