Interview – Guy Spier: Part II
November 17, 2016
Interview – Matthew Peterson (Hedge Fund Manager)
December 12, 2016
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Interview – Andrew Sather (Author – Value Trap Indicator)

(Published: December 1, 2016 at 12.15 P.M. EST)

The next in our “Interviews with the Investing Elite” Series is our interview with Andrew Sather, an investor based in the U.S. and author of Value Trap Indicator (VTI).

VTI helps investors determine whether a stock is a value trap or not. The VTI formula is split into 7 parts, with each component contributing to the final number. The lower the number, the more desirable the stock is, with lower probability of the stock eventually turning out to be a value trap.

Andrew has published a book of the same name, which can be purchased here. Andrew may offer our readers a coupon for purchasing his book at a discount, for which they can contact him through his website.

Andrew Sather

Andrew Sather

Interview with Andrew Sather

1. Please discuss your evolution into a value investor. What led you to pursue a career in investing?

Andrew Sather: I wouldn’t call it a career just yet, as I still have a full-time career as an engineer. I had a mentor at my engineering job, who taught me about investing and got me interested in it. Then I bought “The Intelligent Investor” and “Beating the Street”, and went down the rabbit hole of value investing from there!

2. Which books did you read in the course of preparing for your value investing journey? Which are your favourite authors and books?

AS: “The Intelligent Investor” by Benjamin Graham, and “Beating the Street” by Peter Lynch came first. I also recommend the following books: “What Works on Wall Street” by James O’Shaughnessy, “Winning on Wall Street” by Martin Zweig, “Irrational Exuberance” by Robert Shiller and “The Richest Man in Babylon” by George S. Clason for personal finance. I like “A Random Walk Down Wall Street” by Burton G. Malkiel for education, but I don’t agree with everything in that one.

3. How did you hit upon the idea of Value Trap Indicator? How does it compare with Altman’s Z-score? Are any Institutional Investors using VTI in their investment decisions?

AS: It was a combination of applying what I had learned from Graham and O’Shaughnessy, as well as individual research I had done on the 30 biggest bankruptcies of the 21st Century. I intuitively knew that there should be an objective way to analyze stocks using just the numbers found in a company’s financial statements, as those numbers reflect the reality of what’s going on in the business. VTI is similar to the Altman Z-Score, but has important differences. As you are aware, Nitiin, I wrote a blog post specifically to answer your e-mail query, asking me to explain the difference between Altman Z-Score and VTI.

I’m not aware of any institutional investors implementing VTI as yet, though both Brett Nelson from Simplifying Finance and I use it for every new investment.

4. In the current scenario of abundant access to information and analyses, do you think it’s become harder to find mispriced stocks, and therefore generate alpha consistently? What is the way out?

AS: I don’t think so at all. The information is out there, but most people either don’t apply it, or focus on the wrong metrics. The day people stop piling money into extremely expensive stocks such as Facebook, Amazon, and Netflix is maybe the day this would change. But I don’t see it happening. People are too emotional and will always create bubbles and overvaluations, thus creating under valuations elsewhere. It’s just human nature.

5. With the advent of algo trading / HFT, do you think the role of human traders/investors will reduce going ahead, at least in the institutional/hedge fund investment space? 

AS: I doubt it. People want to deal with people. I think it will always be easier to market a person over an algorithm, at least in the institutional space. I also think the whole HFT thing is so overblown. It’s a scare tactic to make people think they can’t win in the market without “[expensive product]”.

6. Within the listed space, which basket would you be more positive on, the large cap stocks, or the mid/small caps? Do you think large cap or index stocks could beat mid/small caps, or the reverse is more likely?

AS: I’m a big believer in small/mid caps. If you look at it as a whole, big caps will likely have more bubble stocks because of their size. A big majority of stocks that have grown by 16%+ a year for the last 25 years started as small caps.

7. Within the small cap space, how does an individual investor tackle the issue of evaluating management? Can an investor take a call on small cap stocks, based purely on published information, and scuttlebutt investing, without engaging with the investee companies’ management?

AS: I don’t think so. The average investor can’t scuttlebutt management at any big company, and I’ve never believed in scuttlebutt anyway. I mean, what executive wouldn’t be extremely optimistic about their own company? It’s in their own personal interest to be. The numbers will always tell you more about a company than any one person will. People lie. Numbers don’t.

8. Value investing has seldom worked during long periods of bull markets, when asset prices remain unjustifiably high, prompting investors to remain on the sidelines. How does an investor choose between the two?

AS: I’m not the typical value investor in that I don’t believe in holding cash on the sides for big opportunities. To me, the important principles should be fulfilled in this order: first – dollar cost averaging, second – dividend growth stocks, third – buying stocks at a discount to the current market. Over a long enough time period, a value investing strategy that holds stocks with growing dividends and consistent additions of capital for new opportunities should out-perform the market. Most of the “studies” you see out there about value investing under-performing are cherry picking by setting an expiration date and picking short time periods.

9. Large hedge funds (AuM of over $10 bn) are usually unable to invest in promising small cap stocks, due to the market cap restrictions. Would investors be better off sticking with small sized hedge funds (AuM of say $250mn), who may be in a position to invest in small cap stocks?

AS: I’m not a fan of hedge funds. They’re typically expensive and you have no control over the investment selection. Any partially educated investor who has read “Random Walk Down Wall Street” will know that most hedge funds don’t beat the market. Their usage of leverage increases the risk factor. Hedge fund managers are financially compensated for short term performance, meaning your interests don’t align. Investors should always follow the money. Most of Wall Street has a conflict of interest with investors’ success.

10. What is your take on Emerging Markets (EMs) v. U.S./European markets? Are EMs actually safer than European markets in the wake of Brexit and Deutsche Bank issues? How much should a US investor allocate to EMs v. U.S. markets in percentage terms?

AS: Personally, I only invest in U.S. stocks. For one, I’m 100% confident in the future of business in the U.S. Even with the explosive growth in the Emerging Markets, U.S. stocks still dominate global market capitalization. The U.S. has 3x more value in market capitalization than the next biggest country. It’s still the undisputed leader. Also, I live in the U.S. That means any investment I buy outside of the U.S. gets taxed both in the foreign country and here in the U.S. So I don’t do that. That said, there does seem to be potential in emerging markets. There always has and always will be. The hard part is discriminating the winners from the losers. It’s a game I just refuse to play.

Certification and Disclaimer:

We certify that the interviewee did not, and will not, pay us any remuneration directly, or indirectly, for publishing this interview on our website. In other words, this is not a “promoted” interview. 

The interview contains the interviewee’s personal views and opinions. Beyond Quant InvestTraining may or may not necessarily subscribe to them in whole or part, or vouch for their accuracy or completeness, or otherwise. The contents of the interview, including stocks discussed, if any, should not be construed as investment advice, and we no accept no liability or responsibility, for the use of the same by anyone.

© All rights reserved. No part of the interview should be used in any manner by any third party, or redistributed or published on any website or elsewhere, without obtaining prior, written permission of Nitiin A. Khandkar, owner of

Any such re-publication should clearly attribute the interview to Beyond Quant InvestTraining.


  1. JD Branden says:

    This interview is a great value add. I would be buying Sather’s book on VTI soon. Hopefully I will be able to avoid investing in value traps. Thanks for posting.

  2. Rocco Maldini says:

    This is an interesting post. Andrew seems to be quite experienced for his age. Enjoyed reading.

  3. Terrence Goldman says:

    Great reading, but I’d want to see similar analysis being carried out on companies which did not bankrupt, but were still value traps. Thanks.

  4. Jon de Bont says:

    Very interesting posts here. I look forward to more such interviews!

  5. Lucie Freitas says:

    Value trap indicator seems to be a great resource. Hope the author can apply it not just to bankruptcy cases in the past but value traps in the current markets too.

  6. Tom Ford Jr. says:

    I wish to thank you for your time and effort, for publishing this excellent interview!! I undoubtedly enjoyed every little bit of it and I have your site bookmarked, to check out your new blog posts.

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