Small caps are not well covered by Wall Street and investors. Hence, small caps are an inefficient market that creates tremendous opportunities to uncover mispriced investments that most others do not follow.
Going a step further, we find that companies undergoing transformations provide the most fertile grounds for mispricings and also have natural catalysts. Transformations are often mispriced because “change” creates uncertainty and reported financials lag changing fundamentals. As a transformation becomes evident, its share price can more accurately reflect the changes.
Our Long positions are often companies moving from good to great by attracting talented leaders, extracting hidden value, and/or adopting better strategies. Our Short positions are often companies entering a phase of material deterioration leading to the breakdown of intrinsic value.