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What is Cigar Butt investing?

I was surfing through some investment articles and came across a term called cigar butt investing. Naturally it caught my fancy. So, I read about it and am now sharing what I understood about said fancy term.

What it basically entails is investing in a company whose liquidation value is higher than the value it is trading at. The theory is that these companies generally have one last puff to offer before the cigar dies out.

So, investors bet on these companies on the notion that there will be things done where the company tries to bring its traded value closer to its intrinsic value at which point the investor sells and if that fails, then in the event of liquidation, the investor still makes some money when the assets of the business have been liquidated.

Benjamin Graham is credited with popularizing this style of investing for he gained massive wealth investing in such companies during the great depression while his protégé, Warren Buffet is the one who coined the term during his early days in the market.

Always knew smoking to be injurious to health, but I guess when it comes down to that last drag, it could be well worth the puff.


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