Sawbuckd Investment Philosophy

I would describe myself as a modern value investor, with a focus on the micro to mid cap space. I’d say I’ve been most heavily influenced by Joel Greenblatt and his writings. I focus on micro/small/mid caps because I believe the informational advantages the universe offers are easier to find and capitalize upon due to the lack of smarter institutional money that is smarter than me. I think about the portfolio as a mix of 3 buckets: long term value, deep value, and special situations. In an ideal world I’d have 10-20% in special situations with the rest split between long term holds and deep value plays. I don’t love having a lot of cash on hand, but I will keep a small amount on hand in case an opportunity presents itself. In general, I find concentration in holdings to be more appealing from both a time allocation perspective (this is not my fulltime job) and risk/volatility perspective (I don’t care about it) – 10-15 holdings is my ideal.

• Long term value holdings are good companies in industries with secular tail winds. In general, my screening process begins with the classic “magic formula” template (cheap valuation, high return on capital businesses) with deeper fundamental research done beyond that. I do ascribe to the Buffet/Munger “too hard pile” philosophy so there are a number of industries that I don’t currently consider (semiconductors, pharma, real estate, etc.).  I tend to lean toward capital-light businesses with high, consistent ROICs. Good management, ability to grow/reinvest, and low debt are other traits I’m looking for. Holding periods for these type of investments would ideally be 3+ years but I’m not opposed to cutting that short if given the opportunity.
• Deep value plays are fair to good businesses that have fallen irrationally far from reasonable values. This might be due to increased competition, bad news, regulatory uncertainty, etc. Here, I’m looking for the classic “margin of safety” with an appropriate amount of upside that makes it worth my while. Again, I tend to start with the “magic formula” screen to find these names with some fundamental research on the back end to provide some context. Ideally, the holding period on a deep value play will be in the 1-3 year range.
• Special situations include the classic examples: spin offs, M&A, activism, etc. I would love to develop a more thorough process for finding these types of opportunities but I find it difficult – I typically source those from smarter people in the fintwit community. For the most part, I’d say I’m most likely to coattail an activist with an appropriate margin of safety. I think about this bucket as an opportunity to generate returns regardless of market conditions; if the other areas of the portfolio are going sideways, ideally this one would be giving me some return. Ideal holding period in this bucket is 6-18 months.