The Manual of Ideas by John Mihaljevic

Summary

'The Manual of Ideas' by John Mihaljevic is a comprehensive guide for investors seeking to develop and refine their own unique investment ideas. The book compiles insights from successful value investors and presents a robust framework for sourcing, evaluating, and acting on investment opportunities. Mihaljevic explains various strategies, from hidden asset investing to special situations, and underscores the importance of independent thinking. Comprehensive yet practical, it arms readers with methodologies and mental models critical for long-term investing success.

Life-Changing Lessons

1. Develop a disciplined investment process rather than relying on tips or market noise.

2. Constantly seek to expand and adapt your circle of competence to improve decision-making.

3. Think independently and dare to be contrarian when situations warrant; follow your analysis, not the crowd.

Publishing year and rating

The book was published in: 2013

AI Rating (from 0 to 100): 89

Practical Examples

1. Hidden Asset Opportunities

   The book provides guidance on identifying companies that hold valuable assets not reflected on their balance sheets. For example, a business with undervalued real estate might be worth much more than its market capitalization suggests. Mihaljevic encourages investors to look beyond the obvious numbers and seek firms with hidden value, such as intellectual property or strategic land holdings.

2. Greenblatt’s Magic Formula Investing

   Inspired by Joel Greenblatt, Mihaljevic explores the 'Magic Formula', a systematic approach for finding high-quality companies at attractive prices. The formula screens for firms with a high return on capital and a high earnings yield. Mihaljevic illustrates how readers can replicate and adapt this methodology for their own portfolios.

3. Sum-of-the-Parts (SOTP) Analysis

   Mihaljevic details how to break down diversified companies into individual business units to better evaluate their intrinsic value. He describes practical techniques for assigning appropriate multiples to each segment and recognizing situations where the market underappreciates the value of the sum of a company's parts.

4. Owner-Operator Framework

   The book stresses the importance of investing alongside capable owner-operators who prioritize long-term business growth. Mihaljevic discusses how to research ownership structures and management incentives, highlighting examples where strong leadership aligned with shareholders produced exceptional results.

5. Special Situation Investing

   Mihaljevic reviews special situations—like spin-offs, liquidations, and restructurings—that often create attractive investment opportunities. He offers case studies and frameworks for evaluating risk and reward in these scenarios and explains why patient investors can benefit from market inefficiencies during transitions.

6. Avoiding Value Traps

   The book warns against investments that appear undervalued but are fundamentally impaired. Mihaljevic provides tools for distinguishing value traps from genuine bargains, such as scrutinizing management quality and industry trends. He encourages rigorous skepticism and in-depth due diligence.

7. Idea Sourcing Networks

   Mihaljevic outlines how successful investors build and leverage personal networks to source investment ideas. He emphasizes participating in investment clubs, conferences, and online communities. The book offers practical tips on engaging with like-minded individuals to refine and stress-test investment theses.