We believe that earnings growth drives stock performance. The Small and Mid Cap markets can be very inefficient and often contain the fastest growing stocks. Most market participants are burdened with behavioral biases (human nature) that influence their decision making and can cause them to make consistently bad decisions. Investors who can overcome these biases can outperform. Paramount to our success is the disciplined execution of an investment process that is well-defined, represents sound investment principles, has both objective and subjective components, and is repeatable. Our mandate is to stay fully invested and style pure.

We consider ourselves students of Behavioral Finance - it provides a theoretical justification for our philosophy and process. If market participants invest while burdened with these behavioral biases and heuristics, we believe they can systematically make bad investment decisions and create inefficiencies in the market.

Our investment process begins with an initial universe of domestic securities. We refine this universe by utilizing a variety of quantitative screens that focus on identifying companies with superior earnings growth potential. Members of our investment team, each with a different sector specialty, then perform a rigorous fundamental analysis, which may include meetings with company management, analysis of corporate financial statements, and the review of Wall Street research. We review many stocks, but only invest in the ones that meet our quantitative criteria and have a clear and identifiable fundamental investment thesis. This thesis may be unique to the investment or may be part of a broader theme within our portfolio.
 
Our disciplined approach gives us the confidence to make investment decisions based on quantitative realities and fundamental themes, regardless of "conventional wisdom". As bottom-up investors, all companies are analyzed on an individual basis rather than being part of a macro asset allocation process. In the end, we utilize a team based approach to portfolio construction thereby leveraging the information and knowledge base of the whole team. We believe this strategy encourages open debate that helps generate proprietary investment themes while helping to remove emotion from the investing process.

Employing our disciplined, bottom-up approach, we invest in both core growth companies and companies that are experiencing rapidly accelerating growth related to a business catalyst. We seek to manage our risk with relatively equal weight positions utilizing a blend of core growth stocks and earnings catalyst stocks.
 
Core Growth Stocks: We seek to identify high quality, established, well managed companies with strong business franchises; companies that have a competitive advantage in growing markets; and companies that exhibit sustainable, above average revenue and earnings growth rates. Core positions may lend stability to the portfolio because of their earnings consistency. Investors tend to reward companies exhibiting long-term sustainable growth characteristics with premium valuations.
 
Earnings Catalyst Stocks: We seek to identify companies with a significant positive business catalyst that translates into accelerated earnings growth. The catalyst for change may come from within the company or it could be attributed to an event in the marketplace. Positive changes can typically lead to a period of better than expected revenues, and/or earnings revisions and potentially price/earnings expansion.
 
SELF–CORRECTING MECHANISM
Owning both core growth and earnings catalyst stocks at all times should yield a portfolio with better stability in down markets while allowing for significant upcapture potential in strong markets, hopefully yielding competitive returns with lower volatility. Many investment managers own a set type of stock that will perform well in some markets and poorly in others, whereas our balanced approach should offer us opportunities given whatever conditions exist. We believe that the combination of these two types of stocks creates a “self-correcting mechanism” within our portfolios, such that in periods of strong economic growth, we will be shifted towards catalyst companies which typically have higher betas, and in periods of slower growth we will be more concentrated in our core growth holdings which should provide more stability and consistency to the portfolios.