Volatility is a frightening word to many investors and many of you will no doubt say that you have seen enough of that lately. We agree, insofar as providing a smooth investment journey to our shareholders is important to us, but we also know how to make a bit of hay when the sun shines. The investment team at Glennon Capital have successfully worked through numerous market cycles, have over 60 years’ industry experience between them and know how to buy good quality stocks at less than their instrinsic value.
Our investment philosophy has been defined and refined through several market cycles; booms, busts and everything in between and that experience helps us navigate our way through the long term hazards that may trap unwary investors. Our detailed knowledge of listed companies, management, industries and the way they interact, minimises long term risk and allows the team to make better investment decisions.
But what about the companies that have not been appreciating lately? Well, we look at those too. Buying the dips is generally considered to be “not for the faint-hearted” but we believe that when you have conducted proper and detailed research you can find some amazing gems.
Glennon Capital has a rigorous, disciplined and intensive investment process to ensure it avoids or minimises the risks associated with investing in small companies.
Systematically the team gathers information on businesses while also cross-checking and seeking new information not appreciated by the market. We undertake detailed financial modelling combined with significant due diligence.
We assess the management of the company, the industry structure, the regulatory environment and the long-term competitiveness of the business and the industry.
Small listed companies are not as closely followed by analysts as large companies and do not have the same degree of disclosure and transparency as larger companies. That means there are more opportunities for discovering hidden value in smaller companies.
We focus on finding value in small and micro- cap companies that are less efficiently priced and our proprietary research system provides a framework to guide the team in making the best investment decisions.
The key to identifying these investment opportunities lies in our extensive insight and analysis of companies and the industries to which they belong.
The strategy is bottom-up focussed but very aware of the broader macro drivers, especially in the current market environment. Once the research and analysis process is complete, the team’s assessment of value relative to risk will determine the inclusion and weighting within the portfolio. Given the bottom-up portfolio construction process the sector weights are more of an outcome of the stock selection process, however the overall portfolio construction process takes into consideration risks such as liquidity and industry concentration.
These same fundamentals apply when we look at buying the dips. When there has been a significant drop in price for a stock on our watchlist, provided that we have verified our key considerations, we will add the stock to our portfolio. Good businesses are good at overcoming obstacles and setbacks, largely due to superior management so it’s important to be patient and wait for the stock to rebound.
If we regard a company as a good buy at $11.20, then it stands to reason that – if nothing much has changed – it’s still a good buy at $8.05.