SGL Investment Advisors strives to purchase securities at a discount from our calculation of intrinsic value. Although there is no specific level of discount required, we often seek out opportunities that are trading at a 25-50% discount. For smaller capitalization companies or special situations, a larger discount is more appropriate given the higher risk profile.
When securities have declined below their initial purchase point, the Firm will sometimes utilize an averaging down approach. If during the reevaluation process, the security is determined to be trading well below its reassessed intrinsic value for reasons the Firm believes the market has misunderstood – we will look to accumulate further positions in that asset.
There are three primary reasons in which a security would be sold or trimmed:
- The stock price has risen to a point where it significantly exceeds our calculation of intrinsic value and we feel that valuation is not sustainable.
- That has been a material change in company fundamentals or industry circumstances that is significantly different from our original investment premise.
- A better risk/reward opportunity has been discovered and is deemed suitable to replace a current portfolio holding.
The Firm prefers to be patient when it comes to purchasing securities and we believe volatile markets tend to offer patient investors opportunities. Once a position is established, the research process doesn’t cease or slow down. Macroeconomic changes, evolving business environments, and a myriad of other changes may affect a particular security’s valuation or industry position. SGLIA’s assessment of the intrinsic value of a security may change based on these dynamics.