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Individual Investor
Patrick Larkin
Professor of Finance,Education Management
- Education University of Florida, Syracuse University, University of New Orleans
- Qualifications Ph.D., Series 65
All Cap Value
This opportunistic value model focuses on purchasing cash generating firms with strong competitive positions when we believe they are out of favor and significantly undervalued. The portfolio is long only, may use minimal margin, does not trade leveraged or inverse ETFs, and is more concentrated than a typical mutual fund.
I try to buy when there are a lot of forced sellers in the market and to sell when a lot of undisciplined money has entered the market. As Buffett recommends, I look closely at stocks of good companies that are cheap because they are facing a large, one-time, solvable problem. I'm willing to do very little buying or selling for long periods of time, though I am always learning and doing research. I take taxes and transactions costs into account in my buying and selling decisions, but I don't let the tax tail wag the investment dog.
My fundamental approach concentrates on cash flow analysis as well as standard multiple analysis.
My fundamental approach concentrates on cash flow analysis as well as standard multiple analysis.
My primary screening strategy involves eliminating stocks ranked in the bottom decile based on any one of several criteria found by academic research to result in poor performance. I then rank the remaining stocks on value and quality using a rule derived from my own research.
My secondary screening strategy involves monitoring the 13Fs of top investors or the postings of anyone who shares compelling ideas on the internet.
I perform rigorous fundamental analysis on all stocks that emerge from either screen before adding them to my portfolio.
My secondary screening strategy involves monitoring the 13Fs of top investors or the postings of anyone who shares compelling ideas on the internet.
I perform rigorous fundamental analysis on all stocks that emerge from either screen before adding them to my portfolio.
I generally hold between five and twenty stocks. I might occasionally hold a large cash position. I will not make a purchase that causes the weight of a single stock to exceed 20%, or the weight of stocks that belong to a single industry to exceed 40%. I put tax efficiency and avoiding transactions costs ahead of rebalancing for diversification.
As a stock approaches my estimate of intrinsic value, I revaluate it and sell if I have an alternative with a better expected after-tax return. If a stock falls sharply, I also revaluate it, but I only sell if the fundamentals have deteriorated. I do not get scared out of a stock based solely on negative price action. As Peter Lynch said: "When stocks are attractive, you buy them. Sure, they can go lower. I've bought stocks at $12 that went to $2, but then they later went to $30. You just don't know when you can find the bottom."
I might occasionally buy stock in a firm that lacks a strong competitive advantage if it is very cheap and an identifiable catalyst is present. I might purchase an OTC stock or an ADR based in a country that is not on my usual list if the opportunity is extremely compelling.
Model commentary
Patrick Larkin: Apple's buyback is perfectly timed
25 April 2013
Tim Cook is a great capital strategist.
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