The basic idea of value investing is to determine the intrinsic value of something and then invest when the stock trades at less than intrinsic value. I have strong doubts the deep value investing has much to do with intrinsic value.
Maybe value investing is really just a way of finding dogs…stocks where the expectations are really low. And you make money when expectations normalize to something more reasonable. Consider Buffett’s description of cigar butt investing:
If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long- term performance of the business may be terrible. I call this the “cigar butt” approach to investing. A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the “bargain purchase” will make that puff all profit.
All Buffett appears to be saying is that you unload the stock as soon as it appears to be doing better in the short term. But he makes it pretty clear that he doesn’t expect the business to do well over the long term. So what is the IV here? I would hazard that the IV for a lot of shitty businesses is zero. And that all that really happens is that the business turns around for a little while and you sell it before it has a chance to go to zero. I think this aspect of value investing is why a lot of value investors have trouble swallowing deep value. Because fundamentally deep value is about taking advantage of changes in market expectations…not the intrinsic value of businesses.