Idea Generation
A flexible and patient approach to idea generation allows the strategy to capitalize as opportunities arise across geographies, sectors, capitalizations and individual stocks
- Utilize a variety of sources for idea generation
- Persistent market engagement
- Quantitative screens
- Internal/external sources
- Past experience/industry knowledge
Looking to identify high quality businesses trading a discount to intrinsic value
- Discount or dislocation often arises due to:
- Macro event(s)
- Structural/secular change
- Market/industry/stock specific distress
- Spin-offs
- Innovation
- ‘Short-termism’
Goal is identify as many ideas as possible to consider for potential investment
Fundamental analysis
Goal of fundamental analysis:
- Discover great businesses
- Determine the intrinsic value of a company
- Understand the market’s current perception of stock price
- Assess potential catalysts to eliminate potential discount to intrinsic value
Comprehensive focus on industry and stock specific dynamics
Industry analysis
- Understand industry framework
- Follow industry trends
- Look for structural changes and inflection points
In depth, individual company diligence
- Fundamental assessment (Cash flow/revenues, debt structure, ROIC, etc)
- Understand the motivation of management team(s)
- Determine the value of each company’s assets
- Assess the trading dynamics and history of the ‘stock’
Look to take a long-term, patient approach to security selection through the combination of industry and company specific diligence
Risk-Return Analysis
- Math exercise
- Build a ‘structural’ case
- ‘Margin of safety’ of price
- ‘Margin of safety’ of the business
- What is the potential return?
- What is the potential risk?
- Catalysts? Time frame?
Portfolio Construction
- Based on individual client objectives
- Opportunistic by market cap, style, sector or geography
- Concentrated in highest conviction ideas
- Risk/Return Profile – focused on efficient returns