The E Squared Edge:
E Squared utilizes a systematic approach at identifying events that will influence trading in a stock. This comes from our 30+ years of expertise investing in the event driven space. Our significant experience has allowed us to gain an edge in capital markets transactions where we can identify and prosper from valuation discrepancies that occur. Further, a detailed, fundamental understanding of the business of the companies we invest in (including an analysis of profit drivers, margin opportunities, pricing trends, market share, competitors and the overall financial health of the company) gives us a competitive advantage.
Identification of the Event and Understanding of the business
At E Squared we pour through reams of information on a particular company, including SEC filings, press releases, research reports and company presentations with the goal of uncovering a catalyst, data point or situation that gives us an “edge.” After identifying a catalyst, evaluating a Company’s story, position in a particular market, and understanding where they fit in within an industry, we speak with company management, and obtain additional relevant information. Further, we gauge any potential risk to a thesis and assess the likelihood of it coming to fruition.
Expectations versus Estimates
Once we understand where a Company has been and where it is going, we tackle the numbers and construct earnings estimates and price targets that may or may not coincide with overall consensus estimates. Our research team is trained to put together detailed financial models after carefully considering top-line, margin and earnings performance as will as the ability to generate additional cash. Further, we consider a Company’s valuation and compare it to other companies within the same industry, focusing on a number of different metrics. If appropriate, we speak with others in the industry including suppliers, competitors and Wall Street analysts to understand what consensus expectations are and to gauge where we stand in light of what has been learned.
The Industry and Intangibles
Upon completion of our financial analysis, we take the time to learn more about the underlying industry a potential investment is in and what trends are like in that industry. We study leading economic indicators and macro economic data points to make sound conclusions as to where a Company is going. In the case of a highly cyclical company, we make sure to understand where we are in the cycle and when and how we come out of it. For both cyclical and more defensive positions, we calculate how favorable their end markets are, how much upside (or downside) there is to estimates, and analyze where potential growth will come from. If there are particular stocks that are “in favor” within a particular industry, we have the ability to recognize the opportunity early on and take advantage of these situations as they present themselves.
As we make our investment decisions, we consider where a particular company fits within our portfolio and how it minimizes our overall risk. We wisely trade around our holdings as the market dictates, and take advantage of trading opportunities as they present themselves. We work to construct a portfolio of alpha generating positions in companies that have momentum and the potential to surprise.
Our process is continuously monitored throughout the day every day, and we evaluate each holding based on new information as it is released. While this process has many moving parts, we believe it provides a pathway to success.
“You have to learn the rules of the game. And then you have to play better than anyone else.”