Disclaimer: Nothing on this site is meant as investment advice or trading recommendation. The author might hold securities already prior to any discussion. PLEASE DO YOUR OWN HOMEWORK AND DO NOT TRUST ANYBODY WITH “STOCK TIPS” OR “FREE INVESTMENT ADVICE”.
For our MSMIF Portfolio we decided to strictly follow Value Investing principles with a long-term outlook. For us, Value Investing with the focus on Small-Caps is the most favorable strategy for private investors and small funds like the MSMIF that want to outperform the market. For us Small-Caps are especially suitable, as we are not invested with large sums and therefor face less liquidity risk. Furthermore we believe, that smaller companies are more easily understandable. The fundamental assumption of Value Investing is the thesis of overreacting markets, with the consequence of ‘imperfect’ share prices. Markets guided by macro economical and psychological effects lead to overreactions and consequently under- or overvalued stocks. We seek for undervalued companies and gain profits by the increase of the firm value to the level of its fair value.
Small-Cap Companies are especially interesting for us because of lower analyst and media coverage with comparably low liquidity. Due to these facts, overreactions appear more commonly in the Small-Cap market and attractive investment opportunities are more likely to be arise. As we are not invested with large sums and are comfortable with long-term investments, we face less liquidity risk. Furthermore we believe, that smaller companies are more easily understandable. We prefer sustainable and plain business models, with high steady-state revenues and earnings. Geographically, we mainly scope the European and especially the German market.
During the valuation process we focus on our circle of competence, which includes qualitative and quantitative techniques to estimate the fair value of a company in its market environment. Quantitative techniques include the Net Asset Value, Earnings Power Value, Multiples and Discounted Cash flow method. These techniques complement the qualitative due diligence for getting clear insights. The qualitative part provides a close view on the company within its market environment and contains techniques like Porters Five Forces or the SWOT Analysis.
In weekly meetings, pitches are presented by analysts. When a company seems interesting, fulfilling our criteria and exhibiting potential, the MSMIF executives take the stock into consideration. The overall investments are overseen by an advisory board of professionals.