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Dell Inc. founder and CEO Michael Dell. (B. MATHUR/REUTERS)
Dell Inc. founder and CEO Michael Dell. (B. MATHUR/REUTERS)

Strategy Lab

Value investors should feel shortchanged by Dell Add to ...

Dell, one of the stocks in my model value portfolio, is in the process of being taken over by a consortium led by Michael Dell. He wants to take Dell Inc. private via a leveraged buyout.

Such actions happen fairly frequently, depending on the conditions in the credit market, to value stocks. After all, management knows far more about their firm’s prospects than do outsiders and they can spot a good deal when they see one.

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In this case, the takeover price of $13.65 per share is rather parsimonious. Indeed, it has raised the ire of the smart folk at Southeastern Asset Management who believe Dell is worth much more.

Their reasoning is worth reading because it shows, at least in part, how they go about valuing stocks. For what it’s worth, I tend to agree with them and I had hoped for better gains from this one.

Problem is, while it’s possible the company will pick up a better offer, it’s not likely. The total size of the proposed deal comes in at about $24-billion which is very large for such things. In addition, the pool of potential buyers is very limited and I doubt any of them will step up to the plate. But Southeastern might be able to extract a few more nickles from Dell before all is said and done.

If they can’t, shareholders should seriously consider voting no to the proposed offer.

Legacy of Benjamin Graham

The Heilbrunn Center for Graham and Dodd Investing at the Columbia Business School recently created a video tribute to Benjamin Graham, the dean of value investing.

In it you’ll hear the remembrances of some of his famous students including Warren Buffett and Irving Kahn.

You probably know about Warren Buffett, but relatively few follow money manager Irving Kahn who also has a long history on Wall Street. He started working there just before the crash of 1929 and is still managing his own portfolio at the ripe old age of 107. You can learn more about him in Ronald Chan’s new book The Value Investors.

Graham & Doddsville letter

Staying with the Columbia Business School for the moment, click here to pick up their recently released edition of the student-led Graham & Doddsville investment letter.

It contains interesting interviews with value-oriented money managers.

This time around they focus on activists Barry Rosenstein, Scott Ostfeld, and Russell Glass. They also talk to distressed debt investor Daniel Krueger along with Frank Martin and Jon Friedland who discuss their own investment methods.

The psychology of human misjudgment

Charlie Munger’s classic 1995 talk on the psychology of human misjudgment might help you to become a better investor.

Mr. Munger is Warren Buffett’s long-time investment wing-man and, while he might be a little less famous than the Oracle of Omaha, he’s a brilliant investor in his own right. If you want to learn more about him, read his biography Damn Right! by Janet Lowe. Real fans can also indulge in Poor Charlie’s Almanack, which is a collection of his works edited by Peter D. Kaufman.

Professor Robert Hagstrom also recently talked about Charlie in an article called Investing in Worldly Wisdom, which appeared in a recent edition of the CFA Institute magazine.

Stock returns over the really long term

Credit Suisse recently released its investment year book for 2013.

It’s full of interesting facts and figures on global stock markets going back to 1900, on a related note The Economist recently pointed out the dangers of survivorship bias revealed by the new edition.

A prophylactic against market mania

Just in case you’ve been infected by the bubbly mood of the market, grab a stiff drink and read one of John P. Hussman’s latest missives.

 
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