In normal times, when markets are relatively tranquil the opportunity set is narrow. Armies of smart analysts and investors do their research and stocks are priced much more efficiently than less followed stocks. It’s challenging to find an edge, like a needle in a haystack.

During these times we spend most of our time trying to find securities that are either unloved, underfollowed or misunderstood, and are therefore potentially mispriced. We leverage our analytical edge to find more idiosyncratic names. Accessing the same information available to other institutions but attempting to filter and think about it a differentiated way so that we can gain a variant view to the long-term intrinsic value of the security.

Simply put, the odds of finding the proverbial needle in the haystack are higher when fewer investors are looking in the same stack (among some nanocap and microcap names, we occasionally have virtually no institutional competition).

Some of the ways we do this include a) conducting “scuttlebutt” research, especially among smaller stocks; b) seeking out firms with predictive attributes (e.g. founder-run firms tend to outperform); and c) being more patient than the average market participant

What happens when the market gets stressed? See The Tide Goes Out Investing