Deep-Value Owl

Up late with the annual report

Ask an Owl about its Sunday and the answer may well involve five years of a company’s results and a pot of coffee. Owls want to know how the business makes money, how much of its profit turns into real cash, and what it owes. They’d rather know too much than too little, and they rarely buy anything they haven’t studied this way.

All that reading gives them a picture of a company that most shareholders never get. The catch is that a careful estimate can feel more certain than it is. Behind a page of tidy figures sit two or three big guesses, like which year’s earnings are normal. The wiser Owls know exactly which guesses those are.

The whole portfolio fits on a card

Real bargains in good businesses don’t come along often, so when an Owl finds one, it buys a real position. Its portfolio might hold five or six companies, and it can tell you the numbers behind every one of them without looking anything up.

Owning so few is part of the appeal, since every holding gets real attention. It also means one wrong call can hurt, and after months of work, admitting that a call was wrong is surprisingly hard for an Owl.

Happy to sit alone at lunch

Buying what nobody wants doesn’t bother Owls much. If the numbers say a company is cheap and the business looks healthy, they trust that more than the headlines telling them to stay away.

That independence is where most of their best ideas come from, and also where the worst ones hide, because some companies are cheap for a very good reason. A business can shrink for years while its old numbers look fine. So a good Owl keeps asking whether the company is still healthy, as well as whether the price is low.

How they research

An Owl’s research starts with a company, not a chart. It reads five years of results, works out what the business earns in a normal year, and checks the debt against what the company owns. It keeps a short list of companies it would love to own, each with a rough price, and checks its holdings when they report rather than daily.

How they talk about stocks

At a party, the Owl is the one who knows a surprising amount about a company that makes industrial pumps. It isn’t showing off, it just finds that kind of business more interesting than whatever stock everyone else is talking about.

Friends who ask an Owl for a tip tend to get a twenty-minute answer about debt. Owls are often happiest talking with someone who disagrees with them, since a sharp objection tests their case better than another evening with the reports.

How they handle losses

Owls take a loss calmly when the business is fine and only the price has dropped. They take it much harder when the research itself was wrong, because they put so much of themselves into it.

The skill this type works on longest is keeping what it learned apart from the decision that research first led to. Selling a stock it studied for months doesn’t waste the work when the facts have turned, since knowing when to sell was part of why it did the work.