Book Review: The Sleuth Investor By Avner Mandelman

Ian Cassel Blog, Book Reviews 5 Comments

If you were buying a brand new car, would you do so without a test drive? No of course not. Not only that but you would likely do a Google search to see what buyers are saying about the car, maybe buy a consumer reports magazine to compare similar models, talk to friends who may drive that particular model, and if you have a friend in the car business ask them for their advice. I think all of this would be considered rather normal before you made a purchase decision.

The irony is that most investors put more due diligence into a car purchase then where they are putting their life savings. So many investors, even professional investors, only conduct surface due diligence on companies. Surface due diligence is information that is readily available like SEC Filings, financial statements, and press releases. Yes, surface due diligence is very important and necessary but this is only where due diligence starts. Analyzing a company and management team without meeting management or visiting their facility is like buying a car without test-driving it. At the very least you should talk to management, and this is a must with microcap investing.

The Sleuth Investor is the best book I’ve read on conducting due diligence beyond the norm. Sleuth is another word for being a detective and this book highlights sleuthing tactics to get little known facts about a company that can give you an edge in investing. Mandelman goes into detail about his three physical elements of sleuthing: People (management, customers, suppliers), Product (analyzing products), and Plant & Periphery (touring factories, offices etc). I felt some of the approaches he used were a bit extreme, and even Mandelman notes to check with an attorney before conducting certain types of due diligence. Overall though I felt the book was a great read and provided thorough insight into how sleuthing is done as it relates to investing. You will enjoy The Sleuth Investor

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Comments 5

  1. As it happens, I was just trying to find an appropriate book about DD in small caps in order to complete a short essay on the subject, thanks for sharing Ian!

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  2. I agree Ian. Actually another club member sent me the book a few months ago and I was about half way through and then I read this blog post. Forced me to finish it this weekend. I always find it’s extremely important to dig further especially if you are still left with unanswered questions.

  3. This book was a good read but I just don’t see how retail investors can do most of this. I’m doing research on a microcap company DirectInsite, and I would love to call general motors to find out why they cancel their contract with the company. It would also help if I can call a few large banks and ask them if they are considering using the company’s service, but I just don’t see how I can even get started and why anyone would talk to me if I’m not an institutional investor.

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