beaten the returns of the S&P 500 by several points annually. In The Aggressive Conservative Investor, Whitman collaborates with Martin Shubik to discuss a concept that they call "safe and cheap" investing.
In this, the final chapter, the authors discuss some case studies and examples where investors could have made large profits by taking advantage of public companies undergoing asset conversion.
To make money in the market, investors needn't invest only in companies where asset conversion is taking place. Using the "financial-integrity" approach described in the rest of the book, outside investors can earn quite satisfactory, market-beating returns by investing in conservatively capitalized, sound businesses purchased at low prices (based on long-term valuations). If the purchase price is lower than net asset value, even an average return for the company should produce above-average returns for the investor.
The above approach, however, is not for everyone. Activists don't stand back and wait for value to be recognized in prices, they force asset conversions to make it happen. The authors describe a few scenarios, using case studies, where outside investors could capitalize on situations where aggressors were intent on forcing market prices upward.
The examples where asset conversion activities can be foreseen fall under a few categories. One category involves more aggressive employment of existing assets. The authors describe a situation where a group purchased control of a company at a discount to net assets, and then subsequently sought to borrow against those assets in order to expand. The shares were available to the public throughout this process at even lower prices than the shares which were purchased by the control group.
Another category of potential opportunity lies in the area of mergers, acquisitions and going private transactions. In the cases the authors describe, it was clear that catalysts were at play that would have allowed the investor following the SEC filings to understand that asset conversions were taking place. Still, the investor was able to buy securities at prices well-below reasonable assessments of value.