We invest our capital in listed businesses that are misunderstood, where we can ascertain the reason for the market's mispricing, often in investment themes that are played out over years.
Our investment process differs from most investors in an important aspect. Many investors start by locating a security that appears to be trading cheaply (usually by the use of statistical screening methods) and then working backwards to try to establish why it is trading cheaply. Such a method will tell you that a security is cheap, but not why.
We take a different approach. We prefer to start our search in areas of the market that we expect to find securities that are misunderstood. Once we have established that a security is misunderstood we conduct in-depth analysis to determine if the security is trading cheaply. A result of this process is that we tend to undercover unique investment opportunities that do not show up on statistical screens.
A key competitive advantage of our firm is the expertise we have developed investing in companies or countries that are in transition and are misunderstood as a result. This may be due to either a corporate event (such as a recapitalisation, restructure, merger, divestment or bankruptcy), complexity, appearance of conflict of interest issues, accounting that does not reflect the underlying economics of the business or a wider event of some kind (be it industry, environmental, economic or currency-related).
The heightened uncertainty that comes with such situations leads to a scarcity of capital as investors are reluctant to act due to the lack of easy to follow investment metrics. Although capital markets tend towards efficiency over the long term with the value of securities determined by fundamental factors, temporary pricing inefficiencies often arise in such situations. This may be due to sentimental, technical and liquidity factors. As a result, investing during such periods of transition can generate attractive risk-adjusted returns for diligent investors focused on intrinsic value.