| Quest Management’s competitive edge stems from our clear understanding of finance and manufacturing processes, our physical location in Bangkok, and our long and close working relationships with many of Thailand’s leading corporate management teams. |
| FOCUSED POSITIONS | Our management philosophy is founded in a focused portfolio approach, where we invest in only a few companies, combined with thorough bottom-up fundamental analysis and detailed statistical analysis of historical trading patterns in each portfolio stock. We typically invest in 8 to 14 stocks. This focused approach allows us to dedicate significant time and resources to working with the management teams of our portfolio companies to help them improve both earnings and their P/E multiple. We typically advise our portfolio companies on capital structure and strategy issues, and on how to more effectively communicate their business fundamentals and growth prospects to the investment community. We also seek to provide our portfolio companies with business contacts both in Thailand and abroad. We strive to understand our companies and their managers better than any other fund manager. Historically, the
most profitable opportunities for us have been situations where we have identified well
run companies that are widely misunderstood by the investment community, and in which the
management is willing to work with us to improve investors’ understanding of the
company’s underlying strengths. |
| VALUATION CRITERIA | We look for companies with high expected EPS growth over the next two or three years, which have strong management teams and defensible market niches. We buy a stock when it is cheap relative to other stocks in similar businesses and preferably in the lower third of its forward-looking P/E trading range. We typically reduce our exposure to a stock when the stock reaches the upper 10% of its historical P/E trading range. However, we believe in letting winners ride; as such, we tend to maintain our positions as long as the company’s fundamentals are intact and there is strong upward momentum and a consistent flow of new brokerage research coverage and a broadening base of institutional investors in the stock. |
| HEDGING | Depending on our views on the market and overall investor sentiment, we will hedge our long position in stocks by raising cash and shorting SET50 Index futures. If the market has a big short-term run-up based on improved sentiment, we will short to lock in our profit. |
| TRADING & LIQUIDITY | We believe in focusing on the
best values available in the market and typically have 50% to 70% of the portfolio in our
top 4 or 5 stocks. On several occasions we have had 25% of the portfolio in one stock. We
will not compromise on our investment criteria, so we are prepared to hold a large cash
position when we can’t find good ideas. At times cash has been as high as 50% of our
portfolio. (See Cash as a
Hedge) We don’t use leverage to enhance returns in our portfolio; our normal position will be long stock and cash of 10 - 25%. We keep track of the highest price each stock has traded since we owned it. When the current price falls more than 20% below the highest price, we will re-examine our position. If, after detailed analysis and discussions with management we see no fundamental reason for the drop, we will buy more shares and redouble our efforts to get management to explain more effectively the investment thesis for the stock. Our search for hidden value often leads us to invest in small market capitalization companies that receive limited analyst coverage and suffer from poor share liquidity. We typically take 3 to 6 months to buy or sell a position. When buying, we usually stay on the bid side and try to buy less than one third of the daily volume. Likewise, when selling we usually stay on the offer side and try to sell less than one third of the daily volume. Our average holding period for a position is about 240 days, and our turnover averages one time per year. Commissions paid to brokers average 1% per year. We trade off of our asset allocation model that runs on a Bloomberg-driven Excel spreadsheet, generating buy and sell orders based on discrepancies from our target asset allocations. Statistically, we also try to estimate the average cost of active investors in a stock by looking at volume traded at each price compared to the total free float in a stock. We do extensive statistical analysis of historical volume traded at each P/E, as well as backtesting various stop loss criteria and hedging models. We also track who owns the big blocks in a stock, and whether they are looking to sell or buy more. Cash is held in U.S. dollars. |