As a global value investor, MAP goes anywhere in the world to identify companies that pass its rigorous “value” screening and selection process. MAP’s 4-part investment selection process may be summarized as follows:
First, MAP searches globally to identify investments that appear to be underpriced in the market. Ideas for investments are developed through fundamental internal research, databases and industry resources. Typically, investment opportunities start with high quality companies that have been neglected, are misunderstood or out-of-favor, where investor sentiment and emotion has depressed the stock price, or where a stock has underperformed for short-term reasons but the company has positive long-term fundamentals.
Second, if an investment appears attractive, MAP uses quantitative and qualitative “value” criteria to evaluate and screen the company from a business ownership perspective, including its assets, business model, management and any competitive advantage, to determine the true worth of the business.
Next, MAP carefully examines the company and its unique place in the specific business to determine if there is a catalyst – something that will unlock the true value of the company – causing other investors to take notice, and resulting in a higher stock price. Without a catalyst, so-called “bargain” stocks are simply stocks with cheap prices, becoming stocks eliminated from investment consideration.
MAP invests in stocks that have a margin of safety built-in to the current stock price. A margin of safety provides a measure of downside price support, in the event that our investment thesis for the company does not come to fruition. In certain situations, the margin of safety includes selling covered call options on selected stocks, which can enhance portfolio returns, generate additional income, and mitigate downside risk.
MAP also utilizes thematic filters to assist in the security selection process. Even though our research methodology is bottom-up, we realize that economic and political events influence stock prices. By utilizing thematic filters, this helps to ensure that security selections are cohesive with the our views of the macro environment.
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Finally, MAP employs an unemotional sell discipline. In MAP’s portfolios, all stocks constantly compete with the best ideas and investment opportunities currently available. A stock will be sold for a number of reasons, including: its stock price rises to its target price, the valuation metrics exceed MAP’s threshold maximum for owning a particular stock, the position size exceeds limits, or the company’s outlook changes.