Approach To Investing
Tallsalt’s investment philosophy is driven by the desire to achieve positive absolute investment returns.
Preservation of Capital
Tallsalt focuses on preserving the existing capital of its clients as much as generating high returns. By minimizing or eliminating investment losses, a portfolio manager can generate stronger multi-year returns for their clients. The reason is simple: A portfolio that incurs minimal losses does not have to make up the loss in the following year before recording true gains. In this regard, Tallsalt’s portfolio manager, Aaron Edelheit, has established an exceptional track record. Investors with his firm, Sabre Value Management, have not experience any annual losses since the firm’s establishment in 1998.
Identify Opportunities Using “Knowledge Advantage”
Tallsalt seeks investment opportunities where it has a “knowledge advantage.” Our proprietary investment ideas are often small and mid-capitalization companies with little analyst coverage. It is much easier to build a “knowledge advantage” with companies which receive little attention, rather that with large companies that have numerous investment analysts already exploring every detail of the business. Through a rigorous in-house research process, we seek to identify hidden value in companies.
Invest in Companies with Superior Value
Exhaustive research allows Tallsalt to understand the true merits of companies and strength of their management teams. We look for companies that have substantial value that is unrecognized by the market and not reflected in the price of their stock. This unrecognized or “hidden” value may be take the form of undervalued real estate holdings, a corporate turnaround or restructuring success unrealized by the market, growth opportunities overlooked by other investors, or a wide range of other situations.
High Margin of Safety for Each Investment
Tallsalt seeks investment situations that offer substantial downside protection. Investments that possess strong identifiable asset value provide protection, as to stocks with high dividend yields and/or low price to earning ratios (“P/E”) relative to peer companies. Identifiable assets may include such items as cash, real estate, brands, client contracts, optimal locations, valuable patents, licenses and development rights to name a few.
Focused Portfolio Optimizes Diversification
We optimize the power of diversification by focusing on approximately 15 to 40 investments where we can develop a Knowledge Advantage and closely track any developments at the company, in the industry or the valuation of the stock. The incremental benefits of additional diversification begin to decline after an equity portfolio exceeds 25 issues. As the number of issues continues to increase, the Knowledge Advantage becomes increasingly difficult to maintain, and the returns of the portfolio increasingly begin to match that of the market. Tallsalt only focuses on the best opportunities that offer significant appreciation potential with limited downside.
Lower Transaction Costs with Minimal Trading
Excessive trading in a portfolio significantly increases the commissions paid to the brokerage firms which execute the transactions and meaningfully reduce investment returns after subtracting fees. Since Tallsalt is compensated on the invested assets and returns, we have the incentive to reduce these transaction costs and to avoid “churning” the account. Our target holding period or investment horizon is typically twelve to twenty-four months.
Fundamental and Technical Analysis Guides Decisions
Tallsalt employs the both fundamental and technical analysis to make investment decisions. Fundamental analysis allows us to build insights into the true value of companies. We diligently sift through the financial statements and company releases, listen to earning reports and canvass the industry to build our Knowledge Advantage. Technical analysis of the movements of the stock price and valuation provides us with the signals to open and close investment positions. In combination, these two tools are more powerful than either approach alone.