Our Process Incorporates Creative Scrutiny Of The Market, Fundamental Business Analysis, The Projection Of Multiple Future Scenarios, And Collegial Debate.
We spend lots of time looking at companies that other people may think have poor prospects. Many of these opportunities are shrouded in fear, controversy, and uncertainty. These factors can distort perception and increase the odds that a company’s current stock price is disconnected from its long-term business value.
We’re curious, independent thinkers. When a company falls out of favor, we ask Why? and What’s next? Are the issues facing the company structural or cyclical? If the management team made mistakes, what steps have they taken to rectify their errors? What market forces might improve or harm the company’s future in the near or long term?
Ultimately, we think of ourselves as business owners, not renters of stock. Each investment decision is made from the perspective of owning the whole business. Would we be excited to own 100% of the company at the current price? Answering that question requires comprehensive business research, as well as methodical forecasting of possible future trends, opportunities, and challenges.
Choosing To Invest
Our process is multifaceted, but the basic elements include:
- New ideas are driven by all members of the investment team, with a focus largely on company-specific, not sector-specific, opportunities.
- Promising potential investments are assigned to an analyst for extensive review.
- Analysts evaluate normalized earnings, free cash flow, and organic growth prospects using a variety of data which may include, but is not limited to detailed financial statement analysis, assessment of industry structure and competitive outlook, sell-side research, and conversations with management.
- Once we’ve made our assessment of fair value, we compare it to the current market price. The goal is to identify companies which we believe offer the potential for annual total returns in excess of our absolute hurdle rate over the next three years (when we assume the stock will be fairly valued).
- We examine not just a base case forecast, but also upside and downside scenarios. We ask ourselves if we would be comfortable holding a particular investment through the negative part of an economic cycle. If the answer is “no,” we generally look elsewhere.
- We weigh the risk and reward of the prospective investment against current investments in the portfolio. We also use position sizing as a risk management tool.
- Throughout the process, multiple viewpoints intensify the rigor of our thinking. Portfolio managers and analysts work independently to evaluate prospective investments. We then come together as a team to discuss and debate our conclusions. In the end, each portfolio manager makes the final investment decision with substantive input from the analyst team.
Choosing To Sell
Investments are re-evaluated on a systematic basis to assess thesis consistency and continued risk/return opportunities. Our goal is to maximize the ratio of prospective return relative to risk across the portfolio, while at the same time being sensitive to tax implications.
Free cash flow: is revenue less operating expenses including interest expenses and maintenance capital spending. It is the discretionary cash that a company has after all expenses and is available for purposes such as dividend payments, investing back into the business or share repurchases.
Mutual fund investing involves risk. Principal loss is possible. Investments in the Poplar Forest Funds include risks associated with debt securities, foreign and emerging market securities, fixed income securities, small and medium companies, options, Mortgage-Backed and Asset-backed Securities and Investment Companies. See the prospectus for additional information about the risks of investing in the Funds.
Before you invest in the Poplar Forest Funds, please refer to the prospectus for important information about the investment company, including investment objectives, risks, charges and expenses. You may also obtain a hard copy of the prospectus by calling 1-877-522-8860. The prospectus should be read carefully before you invest or send money.
The Funds are offered only to United States residents, and information on this site is intended only for such persons. Nothing on this web site should be considered a solicitation to buy or an offer to sell shares of the Fund in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction.
References to other mutual funds should not be interpreted as an offer of these securities.
Poplar Forest Capital, LLC, is the adviser to the Poplar Forest Funds, which are distributed by Quasar Distributors, LLC.
70 South Lake Avenue, Suite 930
Pasadena, California 91101