The Philosophy: Modern Value Investing
“Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgement is sound, act on it – even though others may hesitate or differ. You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”Benjamin Graham,
The Intelligent Investor
Pendragon Capital is based on the principles of modern value investing.
We invest in companies that are priced at significant discounts to the true value of their businesses. The discount could be defined from a balance sheet perspective where a company’s stock price is less than its net book value or the cost to replace its assets or from an operating profits perspective where the stock’s price does not adequately reflect the cash flows the company is or will be, generating. We are not afraid to buy growth companies as long as we buy them at the right price.
We believe that buying at the right price is critical to achieving long-term returns with a margin of safety. Modern value investing requires patience as it takes time for the price of a stock to reflect its underlying value. This long-term orientation also helps us to be tax-efficient, taking advantage of the lower tax rates on long-term capital gains.
We view investing as buying ownership in a business and not just buying paper certificates.
The Process: Thorough Investment Research
Our investment ideas come from a wide range of sources like financial newspapers and publications, discussions with colleagues, technical analysis, and discussions with industry and market analysts. Once we find a security we believe to be of interest, we then begin our analysis from both quantitative and qualitative perspectives focusing on:
– An understanding of the business and competitive landscape
– An examination of the company’s financial statements
– An assessment of the company’s management
We want to invest in companies that are:
- Good operators
- Growing their cash flows and book value
- Financially strong or improving
We also like to see:
- Significant management ownership
- Little analyst coverage or investor interest
We may not be able to find all these criteria or we may see other qualities that compel us to invest. It is imperative, however, that we determine that the stock price of a company we are considering is at a substantial discount to our calculation of intrinsic value.
Once a company passes our analysis, we then add it to our portfolio.
Similarly, if a company we own no longer is selling at a discount and/or the factors that made it a good investment are no longer present, we will sell that company.
Learn About Our Modern Value Investing Portfolios
We invite you to learn more about Pendragon Capital Management portfolios that embrace our approach of modern value investing.