I recently watched this talk with Tobias Carlisle and ran out to buy his book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations. I've posted some of the finance related talks presented at Google before and they never fail to be good. This one is no exception, what I found through watching the talk and reading the book is more evidence that concepts like smart beta indexing are valid and getting more attention from investors of all types.
The qualitative data that I've collected and the quantitative data that I've read on angel investing echos this sentiment with private growth companies. If you're able to buy a large basket of higher quality companies you'll outperform a basket of all the companies. The funny thing is that although this sounds like common sense, the argument against this thinking for both private and public investing goes something like this...
Sure you're better off with higher quality companies, but how can you tell the good ones from the bad ones? The ones you say are so good seem to be in the worst position.
That's partially true, some of the best companies have points in time when they're vulnerable and their stock price drops significantly making the investment worthwhile. The same is true for private companies, often the best companies are in the craziest of markets... Seriously, who would invest in a company with a plan to disrupt the hotel industry with spare bedrooms around the globe?
Tobias explores ways to get a good sense for what a good company looks like in his talk and book. My book starts to approach this topic for private companies and I'm exploring ways to look at this more quantitatively in a similar manner to Tobias for the next book. Btw, if you want pre-release content from my book sign-up here.
I have his last book, Quantitative Value: A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors in my queue but haven't read it yet.