Savvy Nickel
by John Mihaljevic
John Mihaljevic's systematic guide to generating high-quality investment ideas across multiple frameworks — from deep value and sum-of-the-parts to international investments and equity stubs. The most complete idea-generation framework in print for serious value investors.
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John Mihaljevic is the founder and managing editor of The Manual of Ideas, a premium investment research publication read by leading fund managers worldwide. His book of the same name is the most systematic approach to value investment idea generation available. Rather than a single framework, it catalogs nine distinct sourcing methodologies — each appropriate for different market conditions and investor skill sets. For serious active investors who already understand valuation basics, this is the practitioner's guide to finding the best opportunities before others do.
| Attribute | Details |
|---|---|
| Title | The Manual of Ideas |
| Author | John Mihaljevic |
| Publisher | Wiley |
| Published | 2013 |
| Pages | 320 |
| Reading Level | Advanced |
| Amazon Rating | 4.5/5 stars |
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John Mihaljevic is a former hedge fund analyst and portfolio manager who founded The Manual of Ideas publication in 2007. The publication has been featured in The Wall Street Journal, Barron's, and Forbes. He created a community of hundreds of value investors who share research and ideas. He is a CFA charterholder and a graduate of Yale.
The book's core contribution: a systematic taxonomy of value investment approaches, each with its own logic, tools, and appropriate market conditions.
The original Graham approach: buy companies trading below net current asset value (NCAV).
The calculation:
NCAV = Current Assets - Total Liabilities
Net-Net opportunity: Stock price < NCAV × 0.67 (2/3 of liquidation value)Why it works:
At these prices, you are buying the liquidation value of the business at a discount. Even if the business is terrible, the assets you own are worth more than you paid. Graham called this a "margin of safety" in its purest form.
Why it is rare:
In efficient modern markets, genuine net-nets are mostly found in:
The screening criteria:
| Criterion | Value |
|---|---|
| Price / NCAV | Below 0.67x |
| Current ratio | Above 2.0x |
| Debt/equity | Below 0.5x |
| Insider ownership | Any positive ownership preferred |
| Market cap | Small (typically below $100M) |
Historical performance:
Graham's empirical studies showed net-net portfolios earned 15-20% annually versus 11-12% for the market. More recent academic studies confirm the anomaly persists but is smaller (about 3-5% annual excess return in the U.S.) and larger in Japan and emerging markets.
Some companies are worth more broken apart than as a whole. The market prices them as a consolidated entity, but the individual pieces would attract higher valuations separately.
What creates sum-of-parts opportunities:
| Situation | Why Misvalued |
|---|---|
| Conglomerate discount | Market discounts diversified companies vs. focused peers |
| Hidden real estate | Prime real estate owned by operating companies often under-valued on balance sheet |
| Non-core investments | Stakes in other companies at deep discounts to market value |
| Pension overfunding | Company has more pension assets than liabilities (a hidden asset) |
| Intellectual property | Patents, trademarks not fully reflected in earnings |
| Deferred tax assets | Future tax benefits not fully valued by market |
The analysis process:
Example framework:
| Segment | Revenue | EBITDA | Multiple | Value |
|---|---|---|---|---|
| Consumer division | $500M | $80M | 10x | $800M |
| Industrial division | $300M | $40M | 7x | $280M |
| Healthcare division | $200M | $35M | 12x | $420M |
| Real estate | — | — | — | $150M (market value) |
| Sum of parts | $1,650M | |||
| Net debt | -$300M | |||
| Intrinsic value | $1,350M | |||
| Market cap | $900M (33% discount) |
Joel Greenblatt's Magic Formula screens for companies with high earnings yields (cheap) AND high return on invested capital (good businesses):
The calculation:
Earnings Yield = EBIT / Enterprise Value
Return on Invested Capital = EBIT / (Net Working Capital + Net Fixed Assets)The ranking process:
Historical performance:
Greenblatt's back-tested data (presented in The Little Book That Still Beats the Market) showed approximately 30% annual returns from 1988-2004. More recent implementations show more modest but still market-beating returns of 3-5% annually. The strategy has become more crowded since publication.
Mihaljevic's additions:
The Manual of Ideas extends the Magic Formula by recommending:
Some investors have demonstrated unusual skill over long periods. Following their disclosed positions (13-F filings) provides a ready-made idea generation pipeline.
The 13-F universe:
All institutional investors managing over $100 million in U.S. equities must file quarterly 13-F reports disclosing their holdings. This creates a public database of positions held by the world's best investors.
Key superinvestors tracked by the MOI community:
| Investor | Firm | Known Style |
|---|---|---|
| Warren Buffett | Berkshire Hathaway | Quality at fair price; long-term holding |
| Seth Klarman | Baupost Group | Deep value; special situations |
| Howard Marks | Oaktree Capital | Credit cycles; distressed debt |
| Joel Greenblatt | Gotham Capital | Spin-offs; special situations |
| Prem Watsa | Fairfax Financial | Deep value; macro hedging |
| Bruce Berkowitz | Fairholme | Concentrated; out-of-favor financials |
| Bill Ackman | Pershing Square | Activist; large-cap value |
The 13-F limitations:
The jockey research process:
Companies emerging from restructuring events — spinoffs, mergers, bankruptcies, rights offerings — often trade at prices disconnected from intrinsic value due to forced or uninformed selling.
The spinoff opportunity:
When a parent company spins off a subsidiary:
This mandatory selling is not price-sensitive — it happens regardless of valuation. The result: spinoffs systematically trade at discounts to intrinsic value for 6-18 months post-separation.
The spinoff screening criteria:
| Signal | Why Positive |
|---|---|
| Parent retains stake in spinoff | Suggests parent believes spinoff will appreciate |
| Management goes to spinoff | Talented managers choose the better business |
| Insiders buy spinoff shares | Informed insiders buying after separation |
| Spinoff is small vs. parent | More index selling pressure; larger discount |
| Spinoff is in different industry | More forced selling from mismatched mandates |
The Joel Greenblatt spinoff data:
Greenblatt documented in You Can Be a Stock Market Genius that spinoffs outperform the market by approximately 10% per year on average in the two years following separation.
While U.S. stocks receive intensive coverage, international markets — particularly emerging markets and smaller developed markets — offer opportunities where analyst coverage is sparse and price discovery is less efficient.
The international value opportunity:
| Market | Why Underresearched | Typical Discount |
|---|---|---|
| Japan small-cap | Language barrier; cultural dividend aversion | 20-40% P/B discount |
| Korean small-cap | Chaebols dominate attention; small-caps neglected | 30-50% discount |
| Eastern Europe | Political risk premium; low coverage | Varies |
| Frontier markets | Difficult access; high uncertainty | Large; but also higher risk |
Japan's persistent undervaluation:
Japanese companies famously hold large cash hoards relative to market cap. A Japanese company with ¥100B in net cash trading at a market cap of ¥120B is offering the business for ¥20B regardless of its actual earnings power. This structural undervaluation persists due to:
Activist pressure in Japan:
Elliott, ValueAct, and other activist investors have increasingly targeted Japanese companies with large cash hoards, pushing for buybacks and dividends. Early investors in these situations capture both the discount and the activist catalyst.
Similar to international value but in developing economies with additional political, currency, and institutional risks — offset by larger discount to intrinsic value.
The EM value framework:
| Risk Factor | Mitigation |
|---|---|
| Currency risk | Invest in companies that earn in stronger currencies |
| Political risk | Diversify across countries; avoid state-controlled companies |
| Governance risk | Focus on companies with majority foreign institutional ownership |
| Liquidity risk | Limit position size; longer holding horizon |
| Accounting risk | Apply additional skepticism to reported financials |
Investing alongside or in anticipation of activist investor campaigns.
The activist investment thesis:
When an activist investor (Carl Icahn, Elliott Management, ValueAct, etc.) acquires a significant stake in an undervalued company, they typically push for:
The activism itself creates a catalyst that can unlock value that would otherwise take years to materialize.
The investment strategy:
| Approach | Description | Risk |
|---|---|---|
| Invest before activist | Buy when valuation is cheap before activist arrives | No catalyst guarantee |
| Invest when activist files 13D | Buy on public disclosure (immediate price jump often occurs) | Overpay if market has fully priced the upside |
| Follow after initial run | Invest after initial reaction, before campaign resolves | Overpay if resolution fails |
The 13D signal:
When an investor acquires more than 5% of a company's shares, they must file a 13D disclosure within 10 days. This disclosure reveals activist intentions. Studies show stocks targeted by activists outperform the market by 6-8% annually over the following year on average.
Mihaljevic incorporates position sizing rigorously — something most value investing books ignore.
The Kelly formula:
f* = (bp - q) / b
Where:
f* = fraction of portfolio to invest
b = net odds (how much you win per dollar risked)
p = probability of winning
q = probability of losing (1 - p)Example:
| Parameter | Value |
|---|---|
| Upside (b) | 2x (you win $2 for every $1 risked) |
| Probability of winning (p) | 0.60 |
| Probability of losing (q) | 0.40 |
| Kelly fraction | (2×0.60 - 0.40) / 2 = 40% |
Full Kelly (40% of portfolio in one idea) is aggressive. Most professional investors use "half Kelly" (20%) or "quarter Kelly" (10%) to reduce variance.
The diversification implication:
A half-Kelly portfolio with 10-15 ideas produces:
Mihaljevic describes the research workflow used by the best value investors:
Use one or more of the nine frameworks to generate a list of candidates.
Rapid screening eliminates most candidates:
For survivors, conduct thorough fundamental analysis:
Write out the investment thesis as if presenting to a skeptical fund committee:
Apply Kelly or fractional Kelly to determine appropriate position size based on:
Rating: 4.5/5
The Manual of Ideas is the most comprehensive framework for professional value investment idea generation available. Its nine frameworks, spinoff analysis, superinvestor tracking, and Kelly position sizing together constitute a complete idea-to-portfolio pipeline. Essential for serious active investors.
Hardcover: Buy on Amazon
Kindle: Buy on Amazon
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