Investment Approach

OVERVIEW

While we expect each investment factor to contribute positively to the performance of all our portfolios over the long term, we recognize that any individual factor could be out of favor at any time, and sometimes for extended periods. Our objective is to spread that risk and have a broad distribution of ideas in a given portfolio at any time so that enough investment factors are working enough of the time.


“Choosing stocks without knowing what you’re looking for is like running through a dynamite factory with a burning match. You may live, but you’re still an idiot.”

Joel Greenblatt, Gotham Capital

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OUR PHILOSOPHY
  • Demographic, regulatory, technological, economic, social and political forces constantly unleash challenges and opportunities
  • Target innovation and “creative destruction” in corporate trends, emphasizing winners and losers in security selection
  • Pick your spots – fundamental economic trends don’t always coincide with stock market opportunity

“Without a core philosophy you’re not going to be able to hold on to your positions or stick with your process during really difficult times. You must fully understand, strongly believe in, and be totally committed to your philosophy.”

Richard Driehaus, Driehaus Capital Management

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OUR PROCESS

At Crow Point, we blend rules based, proprietary, quantitative tools with fundamentally driven investment analysis. This discipline seeks to produce consistent long-term results while limiting risk during market downturns.


“One common attribute of the most successful investors: a focus on process versus outcome.”

Michael Mauboussin, Legg Mason


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RISK MANAGEMENT

In our approach, capital is allocated based on security selection, and position sizing is volatility-based – the more volatile a stock, the smaller its place in our portfolios. Our risk approach tries to Identify the market’s risk profile and act accordingly.

  • When equity risk premiums are low we take fewer positions, make them larger positions, and buy lower volatility stocks.
  • When volatility is moving higher and taking risk premiums with it we maximize diversification and establish smaller position sizes.
  • When volatility is rising rapidly and with it equity risk premiums, we try to concentrate short positions, diversify holdings and make smaller long bets.

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PORTOLIO CONSTRUCTION

We rank over 6,000 stocks worldwide. Each stock is given an alpha score based on a combination of 25 fundamental and technical factors, and includes consideration of its underlying liquidity and the dollar value of its daily trading volumes.

Our stock selection model measures “goodness.” Good earnings history, good balance sheets, good businesses, good managements etc. The Apple Pie approach. There are three core elements to our ranking system: (1) Valuation, which relies on traditional metrics like multiples and discounted cash flow, (2) Sentiment, which looks at earnings surprises, estimate revisions, and price behavior, and (3) Quality, which measures things like cap-ex intensity, earnings accruals, and shareholder friendly corporate finance.

Lastly, technicals can never be overlooked. We have a proprietary system that measures technical risk which is used in conjunction with our other risk management tools. We apply a proprietary score to each stock to determine timeliness of entry points, and which also seeks to identify the underlying trend of a given stock.