Decision Making Process
Outside research services, computer screens, and internally maintained lists of potential purchase candidates are the primary sources used to identify prospects. Ideas are screened to determine whether they meet our basic criteria: relative valuation, capitalization, financial strength, and opportunities for continued growth. Then, fundamental research is conducted by one of Skyline’s three portfolio managers, with support from the securities analyst.
All company documents are analyzed, any available industry or research reports are reviewed and, most importantly, questions are addressed directly to company management. Company-specific variables, instead of macro-economic factors, are stressed in this assessment. Lastly, other companies in the same industry are reviewed to determine relative valuation of the company being investigated. An internal research report is developed, distributed, and discussed at regular research group meetings. Input is received from the group, and if more information is required, additional research is done. In addition, the group determines whether the stock provides needed diversification to the portfolio. The portfolio manager on a stock makes the final decision after obtaining input from the entire research group. Mike Maloney has final authority on sector weightings.
We will sell a stock when its P/E ratio rises to a level equal to the overall small cap stock market or its respective industry group. In the case of a stock that declines, we sell only if fundamentals have changed so that the original investment thesis is no longer valid. We will trim a stock if it appreciates to more than a 5% weighting in the portfolio. The applicable portfolio manager gives the securities trader specific instructions regarding trades.