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Investment Philosophy

SDM’s portfolio manager operates in the Mid-Cap core and Mid-Cap value spaces while combining the best elements of both growth and value investing philosophies and strategies.  We believe that it is important to understand a company’s business fundamentals and the dynamics driving the stock’s behavior.

Business_Pillars_Strength1-300x222Our strategy is to achieve significant positive returns by acquiring  stocks at low valuations and selling them when their prices have been driven up–after the broader market has recognized the improved fundamentals.

SDM does not use technical analysis to select investments, but we do examine prior significant price swings to understand the type of news or events that move a particular stock’s price post-purchase. We focus on the following key fundamentals, rather than the “daily noise” on Wall Street:


  • We seek to invest in stocks that are out of favor or misunderstood by Wall Street as represented by consensus estimates, analyst ratings, or common misperceptions.
  • We like a valuation gap, the difference between the current stock price and it’s implied intrinsic value, of at least 30%.
  • We look for a likely catalyst or series of catalysts that may determine the long term value of the company.
  • An investment is sold when: it reaches its fair value, it becomes clear the company’s fundamentals are deteriorating, the stock appreciates and becomes more than 4% of the total portfolio, or a better investment opportunity is identified.
  • We generally invest in stocks contained in S&P MidCap 400 indices. These stocks typically have a market cap of $600 million to $15 billion.
  • Our portfolio typically holds 35-45 equities and a single stock’s exposure does not exceed 3%- 5% of assets.
  • We remain “sector aware,” rather  SDM’s sector shall not exceed 1.5 times the market sector of the S&P MidCap 400.
  • Our portfolio owns companies that are headquartered in the United States.
  • The portfolio will own companies that are headquartered in the United States.
  • SDM’s goal is to maximize total gains. Given the choice, we pursue long term gains rather than short term gains. Tax efficiency is of secondary importance.
  • We manage a traditional long-only stock portfolio.  We do not “short” stocks, utilize leverage, nor buy or sell derivatives.


Risk Management

Like all investments in an actively managed US equity portfolio, an investment in SDM’s model portfolio is subject to risks. Investors may lose money. Specific  sources of risk include:

  • Market Risk:  the value of the portfolio will move with some level of correlation to the broad US equity market.  Stocks in the US equity markets move up and down in reaction to changes in : US and foreign economic conditions, US and foreign macroeconomic environments, tax policies, interest rates, currency exchange rates, investors perceptions, market liquidity, etc.
  • Management Risk:  There is no guarantee that investment decisions by the portfolio manager will produce the desired results and could cause the portfolio to underperform relative to the stated benchmarks.
  • Concentration Risk:  The portfolio is not as diversified as the broader US equity market and relevant equity benchmarks.  This generates above average volatility and risk.