ABOUT

We help Business Owners simplify financial decisions and navigate wealth-building

Hunter Value Capital helps business owners develop and navigate toward their financial goals as an independent, fee-only, no-product-sales, no-commission, financial planner.

For some clients, we offer a micro-cap stock focused portfolio that we create from performing fundamental research.

OUR MICRO-CAP INVESTING PHILOSOPHY

A few firms have good economics. Most do not.

As long-term investors, we begin with the premise that a stock is a piece of a business; the underlying value per share of that business will eventually be reflected in the stock price. Therefore, intelligent investors can buy a stock when its price is far below the company’s intrinsic value and sell as its price approaches or exceeds its intrinsic value. This method lowers the risk of permanent capital loss when practiced pragmatically.

Our goal is to find the companies that have the greatest chance of compounding their intrinsic value during our hold period.  We believe this is most likely to occur when companies have defensible economic moats; are run by outstanding managers who own a significant share of the company; and have the ability to grow per-share value through astute reinvestment by management.

We focus our research on companies that have three primary characteristics:

MOAT

Most companies have no structural advantage that protects their profits from eventually being competed away. In contrast, certain businesses possess structural competitive advantages – or “economic moats” – that enable them to remain profitable over long periods. They are also more resilient when faced with economic slowdowns or temporary market trouble. Companies whose high returns on capital are protected by moats are thus more likely to sustain or even increase their intrinsic value over time, which protects the value of the shares.
We pose the question, “What prevents a smart, well-financed competitor from taking market share from this company?”  To answer this, we examine the sources of a company’s moat, including cost and size advantages, intangible assets, network effects and switching costs – and the likelihood that these will persist over the long term.

OWNER MANAGERS

Incentives are among the most powerful influences in nature.  Owner-managers have a tremendous economic incentive to grow the business over the long term due to their large ownership share.  The best way a CEO can be truly aligned with minority shareholders is by owning a significant share of stock relative to the CEO’s current income and to his/her estimated net worth.  We also assess management’s integrity, capital allocation acumen, competitive drive and operational excellence.

GROWTH

To paraphrase Einstein, “A business compounding its intrinsic value is the eighth wonder of the world.”  We prefer businesses that have growth potential due to their ability to reinvest profits into the business at high incremental rates of return.  A company’s ability to compound its value per share over long periods is often overlooked by market participants with a short-term focus.  Traditional methods of valuing businesses on historical earnings often fail to account for the cumulative effects of competitive advantages combined with reinvestment opportunities; this underestimates the true earnings power of outstanding businesses. We look for qualitative attributes of a business that quantitative methods are likely to miss, including gaining market share in fragmented industries; expanding into newly formed or adjacent markets; or improving the business in ways that increase pricing power.

Our favorite hunting grounds are in the small cap and micro cap space, where companies may have decades of growth ahead of them; or among spinoffs or restructurings where historical earnings and other uncertainties have kept them under investors’ radar.

However, each client has specific goals for their financial future, and for our comprehensive financial planning engagements, we employ a broader, ETF-focused strategy to help you build wealth as you are preparing for retirement.

OUR INVESTMENT CRITERIA

Preparation. Discipline. Patience. Decisiveness.

A common problem investors experience is that they tend to swing too often, to use a baseball analogy.  Humans have a natural bias toward taking action, and this exposes investors to several risks: unfamiliarity with an investment’s downside risks; irrationally high diversification; and undisciplined, costly churn in the portfolio.  This is true of both individuals and professional investors operating under institutional imperatives.  However, the opposite problem is equally harmful to long-term results: discovering a rare, “fat pitch” but being unable to swing with the full weight of one’s capital when the odds are greatly in one’s favor.

We manage a concentrated, long-only portfolio, typically numbering between 8 and 20 stocks, weighted heavily in our highest-conviction ideas.

We have the patience and confidence to tolerate long periods of inactivity when few opportunities meet our requirements; or when companies we own are increasing their intrinsic value but the market is not recognizing their progress.

Because our investors embrace our philosophy, we can leverage our ability to tread off the beaten path to our advantage.  Thus, our strategy includes uncovering situations where where the potential upside is uncertain (but possibly convex), yet the downside is well-known and limited.

An example is a company whose price appears to fully reflect its recent net earnings, but our research indicates that the owner-manager’s investment in a future growth opportunity has been weighing those earnings down.  We may determine that whether the project is completed or abandoned, its expense will abate and the remaining core earnings from a moat-advantaged business provide protection against the downside.  The market may disapprove of the speculative project, so the stock price implies no chance of success as well as a belief that the project’s expense will offset core earnings indefinitely.  Such a situation may represent a case of heads, we win; tails, we don’t lose much.”

Our ability to accept uncertainty that most fund managers cannot is thus a source of opportunity.

This strategy hinges on the primacy of avoiding permanent loss of capital.

  

HVC manages the risk of permanent capital loss by:

  • Selecting companies that are simple to understand
  • Using checklists to minimize errors and omissions
  • Avoiding dealing with people of questionable character
  • Requiring managers to have skin in the game
  • Buying at prices below a firm’s intrinsic value per share
  • Avoiding excessively leveraged or complex balance sheets
  • Avoiding commodity firms that are price-takers (not price-setters)
  • Watching our handful of investments vigilantly
  • Continually challenging and willingly amending our “best-loved ideas”

MANAGER

Ian Hunter, CFA

Founder and Managing Partner at Hunter Value Capital. Ian holds an M.B.A. in Global Finance and Business Law from the Leonard N. Stern School of Business at New York University and a B.A. from Southern Methodist University.  Ian is a CFA charterholder.

Prior to founding Hunter Value Capital, Ian was the Director of Valuations at Savanna, a private equity fund manager in New York City.  Previously he spent a decade on Wall Street in equity research, credit analysis and corporate lending.

Ian has been an avid value investor since the 2008 financial crisis. He currently resides in Dallas, TX.

CONTACT US

Let’s discuss your financial questions. Drop us a note--we reply to every request.

© Copyright 2018-23 | Hunter Value Capital, 5050 Quorum Drive, Dallas, TX 75254. DISCLAIMER This website is not an offer or solicitation in any jurisdiction in which the firm is not registered. For more information, please read the firm's form ADV Part 2A. The firm's strategies may not be suitable for individual investors given the potential for higher volatility and concentration of capital among a small number of investments. The firm's strategies are meant to be a part of an investor's broader, multi-strategy, asset allocation. Photo used with permission from Melodie Miegs. - Enfold WordPress Theme by Kriesi