Sometimes, there are so many value investments available that the only constraint on the investor is a lack of funds. Most times, however, Klarman finds it difficult to find value investment opportunities. Investors can spend a lot of time reading through financial reports, research reports, and other financial news and end up finding nothing but fairly valued opportunities. Therefore, it is important that the investor look in the right places.
A few of the places Klarman suggests finding investment opportunities include the new-low lists and the largest percentage-decliners lists which are published by major news sources. Klarman also finds that companies whose dividends have been cut or eliminated can also be unduly punished by the market, leaving investment opportunities. Of course, just because a stock shows up on one of these lists does not make it a buy; one still has to go through the valuation process described in previous chapters in order to determine whether it trades at a discount to its fair value.
Klarman also encourages investors to look at what management is doing with respect to the company’s stock. Nobody knows the business as well as management does, and so if management is buying that is often a good sign for the stock.
Investors are also encouraged to consider why a stock has been performing poorly (and therefore may make for a good investment). If an investor can pinpoint this reason, he can be more comfortable that he may have found value. If this reason cannot be found, it is possible that the investor is missing some information which the market knows (important lawsuit pending, competitor coming out with similar product etc.).