Steve Morrow

A guideline that's helped us control risk is to require a full reassessment of our investment thesis when we've marked down a company's intrinsic value by roughly 15 percent or more. If you have to mark down intrinsic value, you probably made a mistake somewhere. The question is whether what caused the mistake is lasting [...]

Steve Morrow

We have what we call a risk-bucket model. We look at the sensitivity of each of our holdings to several macroeconomic factors: Is it economically sensitive or recession resistant? Is it hurt or helped by increases in energy prices or interest rates or the dollar? Does it have political or regulatory risk? By assigning positions [...]

Steve Morrow

We're in the camp that there just aren't that many good ideas and when we identify one, we want to make sure it can have a meaningful impact on performance. The biggest holdings are those in which we have the most conviction, which is a function of several things: the size of the discount, the [...]

Steve Morrow

We won't buy if we don't see a 35 percent discount to our current estimate of intrinsic value, which we arrive at in a variety of different ways depending on the company. Ideally we're running a discounted cash flow model, cross-checked against where we believe something should trade based on other metrics like price to [...]

Steve Morrow

The metrics we use to determine value are pretty much what you'd expect. We do private-market-value analysis using discounted future cash flows and by looking at breakup values. At the same time we like stocks that are statistically cheap on a traditional price/earnings basis. We focus on companies trading at a 40 percent or greater [...]

Steve Morrow

We’re trying to capitalize on the incremental mindset of Wall Street. IBM beats earnings by 10 cents in a quarter and everyone cranks up their models and scurries around and takes their full-year estimate up by a total of 10 cents. We’re trying to find companies where if Wall Street’s EPS consensus is $1, $1.10 [...]

Steve Morrow

March 2009 was a generational bottom, in my opinion, and it scared people to death. The market has doubled since then, but hedge fund net exposures are about where they were at the bottom, institutional assets allocated to equities are barely above where they were at the bottom, and the public investor in equity mutual [...]

Steve Morrow

Cyclical industries don’t scare us if we understand the long-term supply and demand dynamics of the industry and believe that the company we’re interested in is on the right side of that. We think, for instance, that insurance is a lousy business. There’s way too much capital, too little differentiation and way too many managements [...]

Steve Morrow

We have learned from experience that the credible expectation of intrinsic-value growth is a helpful guard against value traps. We'd rather own a full-priced business with potential 15 percent per year intrinsic value growth than something at a 30 percent discount that has no growth. The math works in your favor. Ideally, of course, we're [...]

Steve Morrow

There's nothing particularly earth-shattering about what we try to do. We believe the market often misprices stocks due to neglect, emotion, misinterpretation or myopia, so our value-add comes from bottom-up stock selection. We're trying to buy at low prices relative to our current estimate of intrinsic value and we want to believe that intrinsic value [...]