It is critically important to make every effort to protect capital.
As a general rule, when a stock declines by 30% from the initial purchase
price half of the position is sold. This action helps to limit further
damage that could be done to performance while providing the Investment
Team time to determine whether the remaining stock should be sold or more patience is warranted.
Before the decision is made to buy a stock an initial price target is calculated.
If the company’s fundamentals improve beyond our expectation then it is possible
to increase the initial price target. Under ideal circumstances, the decision to
sell a security is made because this price target has been reached.
Our Investment Process is centered on performing intensive fundamental research to
determine what we believe the intrinsic value of a company is vs. the stock's current price.
In the course of owning a security, if we believe the fundamental characteristics
(i.e. financial strength, management’s effectiveness, etc.) that influenced our decision to purchase the security breakdown, this can trigger a sale.
Our portfolio construction process adds another layer of risk control.
We purchase initial positions ranging from 1% to 3% of the portfolio value,
which typically results in a well-diversified portfolio of 45-55 securities.
To limit any one stock from having too much influence over performance, any
position approaching 6% of total portfolio value will be trimmed.
To avoid buying a stock that appears “cheap” only to have it remain “cheap” (i.e. “value trap”) we like to see a “catalyst” (e.g. new product launch, debt restructuring, etc.) present that will cause the market to recognize the inherent value. If this “catalyst” fails to materialize, this can lead to the decision to sell the stock.
|
