Micro Cap Value

We believe persistence of earnings growth is rare, yet investors tend to extrapolate recent earnings growth rates. Accordingly, the stocks of recently successful companies are often overpriced and the stocks of recently unsuccessful companies are often underpriced. Therefore, a contrarian approach, buying statistically cheap, out-of-favor stocks, has been a winning strategy. We believe that investors’ behavior will not change, so that this will continue to be a winning strategy.

Moreover, we believe that through fundamental analysis and a disciplined approach to valuation, we can distinguish between stocks that are merely statistically cheap and those that are truly undervalued. We conduct fundamental analysis on statistically cheap stocks, attempting to identify stocks that are selling for less than their intrinsic values. Our fundamental analysis is focused on estimating normalized earnings, and multiples that provide us with target prices. We seek these undervalued companies that have a catalyst (competitive changes, management initiatives or a variety of other dynamics) that will propel the company to its normalized earnings potential. This return to a normalized earnings should bring these typically underfollowed companies to the positive attention of other investors.

Lastly, we endeavor to avoid a classic pitfall of value investing — being right about the value, but being too early – by focusing on stocks that offer both “good value” and “good news”.