The Ideas Report For Serious Investors

Value Investors Club is an exclusive community of about 200 value-oriented investors. Anyone can get guest access with a 45-day read-only delay, but only members get to exchange views in real-time, both in the form of idea write-ups and message board discussion.

Value Investors Club memberships have become a coveted commodity, and rightfully so.  Consider the outperformance of stocks recommended by members.

So how does one get into Value Investors Club?  Membership is free, but you must submit an investment idea for consideration by the Club's management.  The admission rate seems to be very low, but a compelling investment idea write-up may just be enough to get you in.

Here's how you might go about writing a successful stock recommendation:

• Go to Magic Formula Investing and search for the Top 100 companies with market values of at least $100 million
• Write down five companies that look most interesting to you, either because you recognize them from prior research or you have some knowledge of the industry in which they operate
• Research the five companies and decide which one you consider to be the most compelling investment opportunity
• Visit the Value Investors Club website to get some pointers on writing up a stock.  You'll also be able to see some past write-ups by Club members.
  
• Write a 2-3 page report, including a discussion of the following:

1. Why is the company a good business, i.e., why do you believe it will be able to sustain high returns on capital employed?
2. How cheap is the company on an absolute basis and versus industry comparables?  What is your estimate of fair value?
   
3. If the company has a lot of net cash, have they stated plans for the cash?  Note any stock repurchases, as they might be accretive to per-share value.
4. What is the track record of the company's management?  Do they own a large enough equity stake to make them interested in the long-term success of the company?  A good rule of thumb is that a CEO should have more than five times his annual compensation in shares of stock (not options).
5. What are the key risks facing the company and why do you believe the shares are a good buy despite the risks?
   
6. What are the catalysts that will make the stock price converge with your estimate of intrinsic value per share?

• Submit your report on the Value Investors Club website.

Finally, if you don't think you're quite ready to write a convincing report but would like to learn, we encourage you to read Joel Greenblatt's two books on investing, The Little Book That Beats The Market and You Can Be A Stock Market Genius.  These books will teach you how to look for outperformers.  The books describe the investment approach espoused by the management of the Club.  Good luck!

Disclosure: The author of this post is a member of Value Investors Club. The views expressed are those of the author.