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Investing in Mispriced Securities

We underwrite each investment as if acquiring the entire company, focusing on mispriced, durable (cash flowing) businesses with a clear catalyst for turnaround.

Our Strategy

Tom’s nickname on Wall Street is “Turnaround Tom” as he specializes in buying good businesses at great prices. He is a regular commentator on Fox Business, Bloomberg, CNBC and other outlets.

We benefit from the folly of public markets serving up unnaturally dislocated prices (from time to time) of durable, solid (cashflowing) individual companies — with long track records of operations.

We live by a modified version of Ben Graham’s maxim: “In the short term the market is a voting machine (based on emotion), while in the long-term the market is a weighing machine (based on fundamentals).”

The motto of our firm is from the master himself, Warren Buffett: “Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised.”

We run two simple filters when determining whether we will make an investment:

1.

If JP Morgan were going to finance us to buy the entire company (debt finance) with one catch — we would have to be 100% of the equity, with 100% of our net worth — would we do the deal? In other words, if it works the equity makes a fortune, but if it doesn’t we have to take a job as a Wal-Mart greeter! If the answer is “no, we would not pledge 100% of our net worth as the equity,” we will not buy one share for our clients.

2.

If we were to walk into the board of directors and offer to buy the entire company at the price it was quoted in the public markets today, would the Board immediately call security to have us removed from the building (because the offer was insulting and they thought we were crazy) or would they entertain the offer? If the answer is “no, they would not call security and they would entertain the offer,” we will not buy even one share. The price is not dislocated enough relative to underlying value.

The best way to think about what we do, and why we have a relatively low correlation to the S&P 500, is “Private Equity in Public Markets.” We underwrite each share purchase as if we were going to buy the entire company. We tend to buy stocks that are down in price by 50-80%+ (but not in fundamentals) with a catalyst for turnaround. Oftentimes, we find that revenues and free cash flow are only modestly and temporarily impaired relative to price – and that arbitrage is our edge. We look for doubles and triples over a few years (long-term capital gains) and rinse and repeat consistently (over and over).

We are very good at what we do and would like the opportunity to do it for you. We run a concentrated portfolio of 8-12 companies (85-90% of portfolio), with a derivative overlay and hedging bucket for excess returns without drawing major leverage (10-15% options – long premium and spreads). We run no more than 10-15% margin opportunistically and in many accounts 0% margin.

We run in a separately managed account format because we don’t think you should be forced into a stock that’s up 40-50% in the last 5 months like a commingled fund. We put you in stocks where the move is just leaving the station, not already cruising at 30,000 feet.

You own the account at Interactive Brokers so there is full transparency. You can technically log into your account every day and see what’s in it, but we don’t recommend that. We have trading permissions only. IB calculates the performance fees, high watermark and sends out the quarterly statements.

There are no lockups, there is quarterly liquidity, but we encourage you to have a three-year mental commitment in mind.

Private Equity Investing Framework, Public Markets Price Advantages:

Connect with us for a brief 5-10 minute call and investing materials to see if we’re a
mutual fit.