Core investment beliefs

We have a set of core beliefs which drive our contrarian, value approach to stock selection and portfolio construction:

  1. Sentiment: Markets overreact to news on the upside and the downside. We aim to be sceptical of the crowd and aware of investor psychology, which often leads to an overvaluation of those stocks that are deemed to have good prospects and an undervaluation of those which are out-of-favour.
  2. Mean reversion: Amongst those companies which are out-of-favour, some are more likely than others to generate a recovery in profitability. We believe some companies have characteristics which set them apart from others and focus on these for mean reversion.
  3. Valuation: Fundamental valuation is the key determinant of stock prices over the long term. In other words 'cheap' stocks should outperform 'expensive' stocks.
  4. Diversification: Diversification is an important control. Particular companies or sectors can be out-of-favour for a considerable time.
  5. Fundamental Analysis: We do not believe the market provides contrarian investors with sufficient reward for accepting balance sheet risk. We therefore search for those out-of-favour companies with balance sheets appropriate to their business models. However, there is no guarantee that a company’s valuation will recover and losses may be made.

    The typical profile of a successful stock pick

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