Investment Philosophy

A Long-Term Business Owner’s Approach

Unlike traditional Wall Street research, we do not primarily focus on quarterly earnings. Instead we look at an entity in the same manner a business person would. We tear apart a company’s financial statements and reconstruct them in accordance with economic reality as opposed to generally accepted accounting principles. We determine a company’s intrinsic or private market value through detailed analysis of its financial and operational fundamentals.

We have systematized our methodology and use a number of unique approaches such as: the hidden asset method, the business value method, the franchise approach, “fallen angels”, and work outs/spinoffs to identify companies selling below our estimate of their intrinsic or private market value.

We are Independent Thinkers

We do not shy away from making provocative calls. During 2007 we had a very strong conviction that a bubble was brewing in the housing industry. Not only were housing prices excessive, but the vast majority of homes were also unaffordable. So we wrote an in-depth report advocating shorting the merchant builders.

While we recognized that not all of our clients have the ability to short stocks, by illustrating our thesis on why homebuilders were overvalued, we believe long-only managers still benefited from this controversial call by hopefully avoiding the sector. You may recall that a number of industry specific analysts were not only positive on the group but were also calling for a multiple expansion.