Our investment targets are international/global small-cap stocks that are bargains relative to their future normalized earnings potential.
We seek to invest in solid companies with good long-term track-records, at attractive valuations. This situation usually arises with poor earnings caused by a short-term business problem, which leads to investor pessimism. The resolution of the problem becomes the positive catalyst that drives the share price back up to a normalized level.
We view a stock’s ‘point of maximum pessimism’ as our ideal buying opportunity. Our investments, however, are not distressed companies. Rather, they are good companies with proven business models, a distressed share price and a fixable problem. We aim to profit from a reversion to the mean of revenue growth, margins, earnings, valuation multiple and, ultimately, share price, as our target companies fix their problems.
Investment decisions are predominantly based on our bottom-up fundamental analysis of each company and its share price relative to its future normalized earnings. The remainder is influenced by our informed view of key global macroeconomic and geopolitical dynamics.
To capture value opportunities, we believe investment decisions must be made before a company’s fundamental improvements are fully reflected in its financial results. Once the outcome is clear, the opportunity is lost because the share price has already recovered.
We invest in companies for an average of four to five years, aiming to double our money during that period. We estimate earnings five years out when analyzing companies. We exploit the market’s short-term time horizon, which tends to over-emphasize recent news leading to mispriced stocks.
We run concentrated portfolios with high active share. We do not attempt to resemble an index. Geographic and sector weights are the result of where we have found the best investment opportunities.
We define risk as permanent loss of capital, rather than deviation from a benchmark. Our approach to investing is based on bottom-up fundamental analysis, rather than positioning the portfolio relative to an index. We target solid companies with proven business models, good balance sheets, and a risk/return profile that is both acceptable and asymmetric. Risk management is very important to us and we implement risk controls at both the security level as well as the portfolio level.
Screen the universe of stocks based on select criteria to narrow down opportunities.
Possible future holdings that screened well for value characteristics and are strong candidates for fundamental analysis.
Scrutinize stocks based on key industry, business and financial metrics.
Add attractively valued stocks where our conviction is high, the thesis is solid, and the risk is acceptable.
Regularly monitor existing holdings for fundamental developments, thesis integrity and valuation levels.