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September 27, 2020
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HomeOur Investment Philosophy

Our Investment Philosophy

Investor sentiment about a company’s fundamentals can change much faster and with much greater magnitude than the actual fundamentals. We find opportunities where this sentiment becomes overly pessimistic. The Turnaround Letter concentrates on identifying out-of-favor stocks with real value undergoing significant positive change. Our selected stocks have 50-100% upside potential, or more, over the next 2-3 years. The types of situations that will attract our attention may include:

  • New management and/or board oversight
  • Credible shareholder exerting pressure
  • Spin-off transaction (both sides)
  • Fresh start after emerging from bankruptcy
  • Imminent cyclical upturn
  • Temporary legal/product problems

We invest as if we are buying the entire company, not just a ticker symbol. We are not traders or crowd-followers. Given the multi-year holding period and less-defined futures of our recommended names, our stocks carry higher risk and generate higher volatility than the overall market. We would rather recommend a few high-conviction stocks with higher potential returns than many low-conviction stocks with lower potential returns.

Our research emphasizes in-depth fundamental analysis. We want to understand the business and its strategic issues. Understanding the leadership team is central to our approach: management determines how the company’s resources are converted into value for shareholders. We want to understand why a stock is priced the way it is and what the underlying value will likely be following the turnaround. We follow the maxim, “price is what you pay, value is what you get”.