Investment Philosophy & Strategy
“What the ancients called a clever fighter is one who wins his battles by making no mistakes. Hence his victories bring him neither reputation for wisdom or credit for courage.”
Sun Tzu, The Art of War, 5th Century BC
Prime Value’s investment philosophy owes a debt to the above quote. Avoiding mistakes may not be spectacular when investing in the capital markets, but it reflects the importance of getting the little things right and being prepared for all seasons.
This has been a part of Prime Value’s style since Han K Lee and Y Yong Quek established the business in 1998, combining decades of corporate and investment knowledge into an approach designed for outperformance.
They started that journey convinced that the independent boutique funds management structure is by far the best way to “Build Wealth Together” with investors.
Why is this good for investors? Because we only succeed when our investors succeed; our money is in the funds with your money. We believe we can beat the market, and thrive on the responsibility to outperform. We enjoy the freedom to invest in a way which brings out the best in our talent. And we offer an approach that is unique.
Our team has experienced many market cycles and with them just about every investment situation and emotion available: from the 1987 Wall Street crash to the 1990s recession, the Asian crisis, the dot-com bubble, the bull market of the mid 2000s and the global financial crisis.
Experience in the corporate sector sets our team apart from many other investment managers: a corporate background means we speak the language and ask the right questions of the companies that we are investing in.
This experience has taught us that investment is more than just science, mathematics and statistics. Art and intuition also comes into play. And the foolishness of complacency, the dangers of following the flock are costly mistakes we try and avoid at all times.
Prime Value’s investment philosophy strives to find the right balance between wealth creation and capital preservation. When evaluating investment opportunities, we focus on good companies selling below intrinsic value. We look beyond fundamental analysis of the companies and broader economic and industry data; we get to know our investments, their people and their strategies.
Our investment values are further explored in the following four pillars of our investment process:
Minimisation of mistakes
Minimising mistakes is our number one imperative. We must remember investment decisions are based on market views and intelligence that is often faulty, and on research that is never complete and error-free. Managers therefore live and die on their own judgments. This may seem to be lacking the heroics of picking big winners, but in practice the Investment Manager who makes the fewest mistakes usually produces superior results.
Prime Value enjoys the flexibility of being a style-neutral manager because it allows us to select stocks from across the ASX. This independent approach has delivered for over 12 years and means our process is not easily replicated.
When evaluating investment opportunities, we focus on good companies selling below intrinsic value. We judge stocks based on investment fundamentals while also taking into account macro economic data, corporate financial reports, industry data and comments from corporate officers to determine whether a stock is under or over-valued.
Prime Value believes all economic and financial tests require flexibility, depending on the phase in the economic cycle or the type of stock. There is no standard way of identifying winners or losers in the stock market. Experience and common sense dictate how the formula must be adapted to determine the appropriate investment decision for each security.
The third component in our investment process is portfolio strategy. At Prime Value, our main focus is on good companies selling below their intrinsic value whether they are large, mid, small or micro cap stocks. The ability to consider “all caps” allows us opportunities often overlooked by major fund managers and stockbrokers.
There are good reasons to look beyond the obvious: share prices in the ASX 100 are not always driven by fundamentals; often trading factors and market tools such as leverage,short selling and financial derivatives play too great a role in top 100 share prices. Stocks outside the ASX 100, on the other hand, are less influenced by these factors. Hence they are more suited to detailed fundamental analysis as the basis for investment selections.
Finding a good stock is one thing; knowing when to hold and when to sell is another. We are not traders. Prime Value prefers to buy and hold onto good investments, reducing unnecessary transaction costs and tax burdens.
Many investment managers have held excellent investments only to undo that good work by not understanding when to get out. We try and minimise this classic mistake. As it is extremely difficult to consistently buy when the market is low and sell when the market is high, investment experience and smarts play a big role. The ability to adapt to a situation and the freedom to act quickly is vital. Prime Value will always have an exit strategy in mind for each allocation, but will also pay attention to broader variables such as interest rates, exchange rates, commodity and economic cycles.