Investment Strategies

PG Capital Management, LLC does not predict the direction of the market, the economy, or interest rates.  PG Capital Management will seek out securities that meet the tenets laid out by Benjamin Graham and David Dodd in their 1934 classic book, Security Analysis. The firm searches for stocks whose financial attributes might fall in the categories listed below.

Net Working Capital Discounts (Also known as Net Nets)
These are a rarity in today’s financial markets but always worth a thorough investigation.  Benjamin Graham, in his 1973 edition of The Intelligent Investor, defined “Net Working Capital” as a stock selling below net working capital per share after subtracting all liabilities including both short and long term obligations from current assets.  You arrive at the final number by dividing the number of shares outstanding.  One way to look at this financial metric is the liquidating value of a company.  When a company sells below this number you have a net net situation, a classic value play with an implicit “Margin of Safety.”

Book Value Discounts
These are not rare but can fool the eye of the beholder.  A common mistake made in security analysis is falling into the “Classic Value Trap.” This is buying a security based solely on the fact it is trading at a discount to book value.  Book value is a great metric to use as a starting point. Value managers compare book value to the current market price of the security.  Book value per share is calculated by subtracting liabilities from total assets and dividing by the number of shares outstanding.  Some managers include intangibles; PG Capital typically excludes this number to arrive at the net tangible book value which is a more conservative way to look at a company’s valuation.

Special Situation/Fallen Angels
This category is where specific events will trigger a capital event.  The catalyst for such a capital gain would be: spin-offs, reorganizations, takeovers and corporate liquidations.  Fallen Angels are quality companies that have a temporary problem such as a late SEC filing that might temporarily cause the company to be delisted.  The result is near-term stock price weakness with an opportunity to purchase shares at a discount asset valuation.


Selling Criteria

PG Capital Management, LLC will consider a sale of a security in a portfolio when the investment fails to meet expectations: when the original investment thesis has changed, the investment fundamentals have deteriorated, or better opportunity arises elsewhere.