Our investment philosophy is based upon the belief that, although financial markets are competitive, mis-pricing does occur and can persist for some time. Mis-pricing may result from:
- Short-term behaviour – Investors often adopt a short-term outlook, which creates opportunities for investors with a longer term perspective.
- Herding behaviour – Investors often fall into line with the views of the major market participants, which creates opportunities for independent thinkers who undertake their own analysis.
- Overlooked fundamentals – Small companies often lie below the radar of large institutional investors, so their intrinsic value is often missed.
- Overlooked turnaround opportunities – Investors / brokers often fail to recognise turnaround opportunities because they have ‘had their fingers burnt’ holding / recommending the stock.
- The illiquidity discount – The shares of many small companies are relatively illiquid, which makes it difficult for large and inexperienced investors to buy and sell significant positions without impacting the share price.
Exploiting the opportunities that arise from such mis-pricing requires:
- diligence in thoroughly analyzing companies to assess their intrinsic value;
- discipline to ensure that we always adhere to our investment process; and
- patience to wait for opportunities to arise and potential to be realized.