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Deep Value Investing

Recently, our Cayuga Fund class had a discussion surrounding deep value investing. While this phrase is commonly used, it is rarely defined. Many stocks right now could be thought of as deep value but where is the line drawn? One Cayuga Fund Portfolio Manager defined deep value as investing in small companies that are not widely followed, after conducting significant primary research.

However, the overall class discussion led us to agree on a more quantitative definition; stocks that trade in the bottom quartile of their industry based on relevant multiples. PIMCO defines deep value investing as investing in stocks that are significantly undervalued based on their intrinsic worth (determined by asset-based or cash flow valuation). Now you may be wondering why this discussion is useful for the MBA FaceOff; deep value investing could be a useful strategy to select stocks that have been unfairly punished by the market and are well-positioned for a rebound. However, in order for this strategy to be successfully implemented, a near-term catalyst also has to be present. Given the limited time remaining in the competition, this is likely to be a high-risk, high-reward strategy.

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