Investment Strategy

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Investment Strategy

  1. 1. Investment Strategy by Adam Sues Deep Value Mispriced Special Businesses Balance Sheet Bargains Discount to Sustainable Earnings • Boring, even mediocre, businesses selling at • Businesses trading at a discount to discount to conservative asset valuation normalized earnings power (using FCF) • Net-net Investing: securities trading at a • Special businesses with a sustainable discount to net asset value competitive advantage (wide moats) • i.e. – buy a stock for the cash in the bank and • Lengthy evaluation: avoid overpaying for get a business for free ‘peak’ earnings or promises of future growth Key Metrics Key Metrics Low or nonexistent debt, low P/B, Stable or increasing margins, positive retained earnings, high and improving ROIC/CROIC, insider ownership low EV/EBIT or EV/FCF Event-Driven Investments Stable Returns in Unstable Markets • Special situations investments with clear time horizon and catalyst for reaching intrinsic value • Often capped upside, but opportunities to earn high rates of return on annualized basis in low-risk, high-certainty situations • Returns are uncorrelated with broader market and provide hedge against market volatility Examples Merger arbitrage, liquidations, bankruptcies, spin-offsInvesting CharacteristicsFocus on securities that are ignored bythe broader market, often with little or noanalyst coverage. Typically small to mid- At the 2001 Berkshire shareholder meeting, Warren Buffettcap stocks talked about his approach to investment research: “When I started, I went through the manuals page by page.Bottom-up fundamental financial analysis I went through 20,000 pages in the Moody’s industrial,and lengthy due diligence process transportation, banks and finance manuals — twice.Goal: Turn over every rock to find the I actually looked at every business — although I didn’t lookbest opportunities that are out of reach very hard at some.”or overlooked by institutional investors www.valueuncovered.com • asues@valueuncoveredcom

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