Investment Philosophy

At 1035, our investment philosophy is to target companies undergoing fundamental business improvements that should drive future stock returns. These positive changes, or catalysts, are hard to identify and analyzing their impacts can be time consuming. This creates the conditions for under-followed and mispriced assets in the market. Our passion is to uncover these opportunities before the ramifications of a positive catalyst become evident to the majority of investors, a concept we call “front running the black box.”

Front Running the Black Box

With the increasing popularity of quantitative investing and the use of algorithms, i.e. black boxes, we are experiencing greater market volatility as more investors allow computers to make their investment decisions without knowing why. This is leading to less conviction and higher turnover which negatively affects investors in the form of higher taxes, more uncertainty, and less consistent performance.

At 1035, our goal is to be more strategic and forward thinking when evaluating investment opportunities. We believe there is a place for analytical technology and include it in our process to highlight ideas, but not to automatically trade without further research. Instead, we seek to understand the factors that drive long-term value creation such as increasing sales growth, improving margins, and/or better asset utilization. This allows us to identify companies that should exhibit those traits 6-12 months into the future.

Through our fundamental research process, we aim to uncover opportunities early and take advantage of the repricing that occurs as other market participants (i.e. the black boxes) catch on to the positive fundamental changes (i.e. catalysts) at the companies in our portfolios.

Traditional value managers often wait many years for their investments to play out because it may take that long for other investors to realize the valuation disparity. Historically, these valuation disparities are corrected late in bull markets and into bear markets or recessions.

Growth investors tend to have very volatile returns because they are always chasing the next growth trend often getting caught in the busts that follow. Traditionally, growth investing performs best early in the business cycle when growth is hard to find and during economic expansions.

This is why we, at 1035, seek to marry both styles of investing in order to participate in more of the business cycle and improve long-term investment returns. To offset the pitfalls of value investing, we focus on companies with near-term catalysts that should help other investors realize the opportunity sooner and increase the value of our holdings in the process. To combat the volatility of growth, we are sensitive to valuation and try to invest in emerging trends based on our research rather than fads already well-known to the market.

Read more about our investment management services and current strategies.