The Gator Investment Process

Gator employs a disciplined and consistent investment process across all of its portfolios.

Narrow the universe of stocks for potential investment ideas – The universe of exchange-listed stocks is greater than 10,000 companies. Because this is too large for any investor, Gator narrows the list using several tools. We maintain an ongoing list of companies with good business models.  The current list has about 300 companies, but companies are added and dropped from the list regularly.  We also automatically run keyword searches on the major newswires to highlight corporate events that may unlock value. Additionally, we run computer screens to look for the companies repurchasing their stock or increasing their return on invested capital.

Preliminary reading to generate investment ideas – To determine which companies merit more thorough analysis by our investment team, we read through the earnings releases and the conference call transcripts of the companies we've found in the initial screening.

Thorough fundamental research – Upon deciding to do further research, we use several sources to gain a complete picture of the company and its business. We review the annual reports and focus on the CEO’s letter to shareholders to get a sense of the company's overall direction and focus. We read the securities filings, and build a financial model to understand the underlying economics of the business. We also perform an industry review to determine market growth rates and competitive threats. During this process, we build a list of questions to ask management, and meet with management. Finally, we try to get the “scuttlebutt” on the company by talking to our industry contacts and former employees of the company.

Write investment thesis – A very important part of the investment process is to write a 2-5 page investment thesis for the company. This helps to focus our thinking about the company; it may highlight weak areas in our analysis and deter us from purchasing the stock, or may serve as a later reminder of the reasons that led us to purchase the stock.  Many potential investments are discarded at this stage because if we can't write the investment thesis clearly, it usually means the thesis isn't very good.

Compare potential investment with existing holdings – Next, we compare the potential investment against our existing holdings to determine if we have a greater level of comfort and /or a greater potential return in the new investment.

Implement investment idea – When we decide to act on an investment idea, we change our model portfolios and begin to purchase the shares across client accounts.

Continual review of holdings – We constantly review our portfolio holdings to determine if the business franchises are getting stronger or weaker. We also monitor growth rates and expectations to ensure our holdings are performing as expected.

Sell discipline – Although we intend to have a long investment period with each of our investments, we don’t hesitate to sell an investment when we realize our capital is in danger. If a stock is breaking down and the explanation isn’t obvious, the market usually knows something we don’t. In this case, we try to reduce our position and reassess once we gather more information. We will also sell investments when we disagree with management decisions. Another reason to sell is the emergence of new competitive threats. However, our favorite reason to sell an investment is that we find a new investment that has a better risk/reward balance.