Our Investment Process
The Palisades investment process concentrates on the universe of small emerging companies with a market capitalization greater than $100 million but less than $5 billion in size. In step one of the process, Palisades runs a series of intensive proprietary screens to find high quality companies with positive business momentum. Palisades' proprietary screens yield about 5-10 new names per month. Palisades conducts proprietary fundamental research on each new stock that passes through its intensive screens. Palisades downloads 10 years of annual financial statements including balance sheets, income statements and cash flow statements. If a stock passes this level of the analysis then it is purchased across client portfolios. In addition to looking for new names, Palisades also monitors current holdings and sells companies with declining estimates or otherwise negative business momentum. Palisades does not use Wall Street research. Indeed, Palisades sources 100% of it's ideas in-house.
Quinn Stills has researched all of the stocks for the Small Cap strategy since he created the strategy in 2011. Quinn’s past experience has included working in some of the top investment banks in the country including Goldman Sachs, Drexel Burnham Lambert and Kidder Peabody as well as investment management firms, including The Boston Company Asset Management, after he received his MBA from Stanford University. Palisades does not pay for outside research. Furthermore, most of Palisades' holdings have slim coverage by the research departments of large Wall Street firms. Portfolio Construction & Risk Control Methodology Portfolios are constructed from the bottom up on a stock-by-stock basis. To minimize stock specific risks, most positions are initiated at 1%-2% of the entire portfolio at purchase. Sector weights are limited to 35% or less of the weight of the overall portfolio. Each position is monitored on a daily basis for changes to earnings estimates while company balance sheets and other financial statements are reviewed on a quarterly basis as they are filed.
Palisades invests in small and emerging companies with positive business momentum including positive earnings revisions, improving balance sheets, and attractive financial statement dynamics. In contrast to the aforementioned buy discipline, Palisades sells companies when it appears that their business momentum has turned negative and will be impaired for an extended period of time.
Palisades' buy decisions are rooted in an intensive fundamental analysis-including a forensic accounting review- of a firm’s balance sheets, working capital and other cash flows. Investment candidates are screened with an emphasis on earnings revisions vis a vis their peer group. Palisades' experience suggests changes to balance sheet and income statements drive earnings revisions with positive revisions consistently leading to price appreciation (and, conversely, negative earnings revisions leading to stock price drops). Typical entry position size is 1.5%. The Palisades strategy prefers to buy and hold. If strong fundamentals remain in place, Palisades will let the stock ride higher and higher. Any disruptions to balance sheet and financial statement dynamics, however, will be trigger a watch and subsequent sell of a holding. It is worth noting that portfolio turnover is typically low.
THE DATA TELL THE STORY
Palisades believes that the data tell the story! Palisades does not believe that corporate managements give the complete picture of company challenges. Palisades relied on cold, impassionate, quantitative data to assess the quality and sustainability of each company’s business momentum, including an examination of the health of the cash flow, and changes to company balance sheets. Palisades' goal is to produce returns that are greater in market up-turns with less than market participation in stock market down-turns.
RECOGNIZING FUTURE OPPORTUNITIESPalisades' portfolio manager is an expert at identifying critical turning points in a company’s success. Palisades utilizes forensic accounting analysis to construct a pipeline of new ideas, including near-term candidates that are deigned to be “future opportunities”.
ADDING VALUE THROUGH INSIGHTPalisades gains insights unique into companies by examining several years of financial statements. Palisades uses its proprietary comprehensive analysis to capitalize on unique opportunities.