We have a formal review process if a stock declines by 20 percent or more from our original point of purchase. The analyst responsible for the idea reviews it fully with the entire team, with everyone focused on identifying what we may have missed. There's no forced action at that point, but if we do [...]
We don't invest in binary win/lose situations. A deep-value manager can quite openly accept that some of his holdings may go to zero, assuming that big winners will more than offset the occasional big loser. We don't contemplate losing too terribly much on any investment.
We rely on companies' historic valuation ranges and/or peer group valuations on traditional measures like price-to earnings, price-to-book, and price-to-sales to identify investment targets and then project future valuation ranges. The basic discipline is to buy in the lower quartile of the valuation range and sell towards the upper end of the long-term range. You [...]
Given our emphasis on improving valuations, catalysts tend to be important us. The catalysts can be things like a successful new-product introduction, the onset of a new product cycle, a change in senior management, the divestiture of an underperforming division, or simply better financial performance. There must be identifiable events that would cause rational expectations [...]
A predilection of mine that has caused problems at times is to favor stories or companies that are complicated or esoteric. The classic example for me was Novell, the software company, which provided probably the most painful investing experience we've had during my tenure here. It's a long story, but we bought the stock many [...]
I’d argue the market isn’t terribly efficient any of the time. Underpinning the efficient markets hypothesis is the notion that markets tend toward an equilibrium price and that there’s a normal distribution around that efficient price. It’s a nice theory, but I don’t see evidence for it in the real world. Quite the opposite, valuations [...]
There can certainly be a cyclical component [to what we find interesting],but the more salient observation is that there is variability over time in how the market looks at the company or industry. Perceptions don’t vary much for things like electric utilities or even a stable blue-chip business like Coca Cola. In those cases it’s [...]