- Beguiled by Mephistopheles’ Smile: the Crux of It All
- The Myth of Low PEG
- SAGE Prunes the Left Tail
- Macro Considerations & the Value of Playing Defense
- SAGE Stock Characteristics: Some of the Secret Sauce
- SAGE: March Buy List for Model Portfolio
- Sample SAGE Model Portfolio
Our Core Small & Mid-Cap (Core SMID) model has continued to put up solid results over the last 12 months despite significant name concentration and low turnover in an environment characterized by high levels of market volatility and correlation. While the model has a number of mechanisms that help to systematically exploit large spreads between “growth” and “value” stocks, we admit this has been a year of living cheaply. The Core SMID model’s predilection for value shares at the expense of more traditional growth names has not been lost on a subset of our customers, and there has been some consternation at our relatively defensive posture.
In discussions with investors we struggled to pin down precisely what constitutes a growth company. The striking range of answers has been enlightening if only to reveal the intellectual diversity that can inhabit the predefined style boxes created by consultants. While the more esoteric descriptions often engender entertaining discussion, we have found that they typically prove to be unreliable constructs for those seeking to build and test the efficacy of an investment process. After examining a range of concepts, we settled on the use of long-term expected earnings growth as a defining proxy for a growth stock. Skeptics should note that in all four major methodologies tested by us (Price-to-Book, Price-to-Sales, Two-Year EPS Growth, Five-Year EPS Growth), the variations in outcome were minimal (+/-3%).
Knight Capital Americas LLC (“Knight”) and Kailash Capital, LLC (“Kailash”) terminated their consulting arrangement effective May 31, 2013. Knight and Kailash are not affiliated in any way. However, Knight has given Kailash permission to reprint and redistribute certain material created during the term of the consulting arrangement. The content of this report, including those materials referenced in the report, are provided without warranty of any kind, express or implied, and Kailash and Knight bear no responsibility for the accuracy or completeness of the information contained therein or for the use of any such information by the recipient.
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