INVESTMENT PROCESS
 
At Lapides Asset Management, our goal is to generate a meaningful absolute return within an attractive overall risk profile for our clients. If our investment philosophy is the strategic basis for making investments, it follows that our investment process defines the tactics that lead toward a purchase. As we move through this process, we first discover a suitable candidate, then understand its business and products, in order to best value its worth. Only when the reward for the risk taken is significantly attractive will we purchase shares. Once the investment is in our portfolio, we continually monitor our original thesis, and ultimately sell - hopefully at a significant gain. Importantly, a strong appreciation for minimizing risk underlies everything we do. Our aim is to find for our clients' portfolios the right companies at the right time at the right price. Please click below to read more on each step.
       
Measure Value Build Mosaic Monitor Thesis Sell Appropriately
  Manage Risk  
         
Prospect Idea

We acquire our information directly and unfiltered, then combine it with our knowledge of underlying industry dynamics. The cumulative and generalist nature of our research team's experience is key to our ability to connect the many dots.

Through comprehensive on-site visits and exhaustive, in-depth interviews with companies all over the world, we develop a deeper understanding of potentially attractive investments. For us, a typical site visit to a company provides not only intelligence on a firm; it also provides an opportunity to learn about a company's distributors, vendors, competitors, and customers.

A skilled analyst is always prospecting - searching far and wide. Good ideas can come from anywhere. In fact, it's almost easier to say where our ideas do not come from: the brokerage community or from screening financial databases.

Our objective is to find good companies that - for some temporary, identifiable and correctable reason - have a discounted valuation in the marketplace. Under the right leadership, performance and perception can materially improve. Buying our investments when they are out of favor allows us to bridge the gap between a company's current value and where it should be valued - the profitable transition over time from hidden gem into coveted jewel.

Measure Value

Each of our investments must have a discount valuation and financial flexibility within the context of meaningful - however unrecognized - internal change.

Our valuation process begins with traditional metrics such as the price-to-earnings ratio, enterprise value to EBITDA, and free cash flow analysis. Importantly, our valuations are based on long-term operating metrics and are measured against comparables. We are nevertheless aware of the limits of assumptions in mathematical calculations, so judgment and experience always trump a strictly formulaic approach.

Financial flexibility is having the wherewithal to achieve the long-term strategic objectives that we believe are critical to reaching our investment premise. During this phase of the investment process, determining whether or not a company has financial flexibility and is trading at a sufficient discount is essential before proceeding.

Build Mosaic

Our process has always been differentiated by its research-intensive nature. The ancients built their mosaics by piecing together many small stones to create a picture. Our research methodology is likewise hands-on, time-consuming and enhanced by our investment team's decades of experience researching companies around the globe. We build our mosaics out of small pebbles of information - some picked up right off the ground while many more are buried deep beneath the surface.

To be successful in an investment, an investor must have an edge in information or an edge in perspective. We buy a stock when we believe we have that edge. Again, each Lapides investment must have a discount valuation and financial flexibility within the context of meaningful - however unrecognized - internal change. An understanding of that meaningful change is the picture our research mosaics yield.

Monitor Thesis

Monitoring our thesis takes many different forms, but we believe the real work begins once the first share is purchased, when we intensify the process of substantiating our thesis and continually evaluating its validity. This part of the process goes on for as long as we own a company's securities, and even after, as we may own a stock more than once. Our thesis must withstand rigorous scrutiny during the holding period. We spend a great deal of time discussing issues and conditions with persons deeply involved in the company or industry: line and staff executives, other current and former employees, customers, competitors, distributors, vendors and anyone else in a position to evaluate the company's strategies and capabilities.

Importantly, we have the discipline to reappraise or readjust for significant events and changing environments.

Sell Appropriately

Before determining whether it is appropriate to sell a company's stock, we believe one must have a clear idea of why it was bought in the first place, underscoring the importance of building the mosaic and monitoring our original thesis.

Our sell discipline embodies balancing our expectations and the original thesis against the relative size of the position in the portfolio. If the company's stock price fully reflects the impact of the meaningful internal change that was the original basis for our investment, the position is sold. We also sell when the markets become much more enthusiastic about our holding than we are - and that heightened enthusiasm is reflected in the valuation. Of course, if we recognize that we have made a mistake in our initial analysis or if significant events alter the potential housed in our thesis, we will also sell.

We approach our sell discipline with an acute sensitivity to other investors' expectations, knowing that their ever-changing perspectives compel us to manage our positions proactively. We are fully aware that selling appropriately involves balancing the concept of "leaving money on the table" against the knowledge that risk escalates with a rising valuation. Just as we accumulate our holdings in stages, we typically "average out" when selling. Our cash position is a residual of the process.

Risk Management
We manage risk every step of the way.  When prospecting for opportunities, we must be able to understand the business.  When valuing companies, we are extremely sensitive to our assumptions, trying to consider everything that can go wrong.  By combining our deep understanding with our conviction in a company, and by buying that company's equity at a meaningful discount to its potential value, we seek to limit our downside considerably (thus preserving capital and creating the opportunity for meaningful upside). We also create the ability to further enhance our over-all risk/reward profile by "averaging down", purchasing more of a company's stock when the firm's stock price falls.  Always conscious of the price impact of a sale at market, we are patient sellers, and we tend to "average out" over time.

 

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