Knowing When the Price is Right


Transcript

Beyond thinking about the broader risk management umbrella—whether it’s the guardrails from a sector perspective, or looking at factor analysis, or stress testing—we’ve dug deeper from a security selection standpoint. I think we've always done this, but we’ve institutionalized it.

We’ve always put in place price targets. What’s a business worth, perhaps to a strategic or financial buyer? Or, if they achieve this level of earnings, what kind of multiple should they enjoy based on some historical context or broader analysis that we’ve put in place?

But what we've done more thoroughly here is look at the downside as well. In the event things don't pan out like we think over the next 6 to 36 months, or we have a recessionary environment that we didn’t envision, where has this the stock historically found support?

Having that upside and downside has helped us to frame broader risk/reward with a particular idea.

When a stock hits a price target, it doesn’t mean that we’re going to move on. In fact, in some cases, the fundamentals might warrant further upward revision to what we think a businesses is worth.

Conversely if a stock hits our downside target, it doesn't mean that we need to move on as well.

We keep falling back on 10 Principles of Value Investing™. Is the investment idea, the holding, still scoring reasonably well when we think about our 10 Principles of Value Investing™? Is it hitting the majority of those points, whether it’s from a quantitative standpoint—is the valuation still attractive, is the balance sheet still in good shape?—or from a qualitative standpoint, is the catalyst still intact but perhaps derailed to some degree, is the management still in place, the business strategy still in place.

This has just been a great enhancement for us as we think about the high-level conviction ideas in the portfolio and how they stack up relative to other ideas in the portfolio.

At the end of the day, we recognize that we’re in a very competitive industry, and we want to strive to continue to get better. The most important thing though is that we’re still continuing to operate like we have in the past, and these broader initiatives are helping us hone our portfolio construction.

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Presenter

Heartland Advisors Value Investing Portfolio Manager Will Nasgovitz

Will Nasgovitz

Nasgovitz is CEO and Portfolio Manager of the Select Value and Mid Cap Value Funds and their corresponding separately managed account strategies. He also is CEO of Heartland Funds. He has 18 years of industry experience, 14 at Heartland.

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