PERCEIVING VALUE BEGINS WITH SEEING WHAT OTHERS OVERLOOK
Numerous academic studies find markets do not operate efficiently. Behavioral finance, in particular, suggests investors consistently underreact to important announcements. This creates a strategic opportunity to capitalize on these underreactions through focused investments.
READING THE SIGNS
Certain actions taken by firm management can signal that a stock is either overpriced or undervalued. Occurrences of undervaluation can create an opportunity for significant gain once the market recognizes the inadvertent discount. These signs may include stock repurchase activity, dividend policy changes, and insider buying activity. Our team specializes in signal recognition to anticipate sources of potential alpha.
DETERMINING WHAT’S FAIR
Identifying the “fair” market price of any company is challenging. Signals provide a launch point for applying the same fundamental, bottom-up analysis to understand underlying characteristics. Management-signaled undervaluation combined with fundamental strength provides investment opportunity.
SEEING THROUGH THE NOISE
Markets are volatile and “noisy.” Noise surrounding a stock’s price creates a potential for its market price to diverge from its true value. This creates an opportunity for us to purchase stocks which are being overlooked or which have been unduly punished. We look for a catalyst to dispel the noise, surprising the market and upsetting widely held analyst expectations.