• 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%). Note: for investors who want reasonably priced profits, please see our later research explaining the folly of fast growth stocks and our work on GARP stocks.

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