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 or misunderstood, and thus are out-of-favor. This happens when 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.
Beyond finding and evaluating a bargain, we look for the true worth inherent in many of these companies and the potential shareholder benefit should the stocks appreciate from what may be deeply mispriced levels.
Developing Global Themes and Filters
While we believe that investing in companies, rather than markets, promotes a thoughtful and long-term perspective – MAP also utilizes thematic filters to assist in the security selection process. Looking beyond our bottom-up research methodology and understanding that economic and political events influence stock prices, we use thematic filters to ensure that security selections are cohesive with our views of the macro environment.
Conducting Fundamental Research Analysis
MAP uses quantitative and qualitative “value” criteria to evaluate and screen a company from a business ownership perspective. This includes looking at financial statements, business models, profitability, valuation metrics and any competitive advantage to determine the true worth of the business.
Identifying Catalysts for Change
MAP also carefully examines a company’s ownership, management, strategic plans and 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 result in a higher stock price. Without a catalyst, so-called “bargain” stocks are simply stocks with cheap prices, becoming stocks eliminated from investment consideration. These are also known as ‘value traps’.
Portfolio Construction and On-going Risk Management
Our investment process includes risk management techniques that strive to identify and mitigate downside risks at all times and in all market environments. After our thorough fundamental research and identification of catalysts, MAP invests in stocks that we believe have a margin of safety built-in to the current stock price. A margin of safety may provide 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 seeks to enhance portfolio returns, generate additional income, and mitigate downside risk.
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.