the objective

At Evans Capital Partners, the objective is simple: to beat the market with low fundamental risk.

We do this by:

  • Buying Value, Not Hype: Purchasing securities priced well below their intrinsic value based on careful analysis, fundamental economic models, and empirically demonstrated strategies.

  • Thoughtful Diversification: Building a concentrated, carefully chosen portfolio that is diversified across industries to reduce industry specific risk while allowing each investment to matter.

  • Protecting Capital: Avoiding practices that can lead to permanent capital losses - no margin, no shorting, no options.

investment philosopy

I focus on identifying securities trading at large discounts to my conservative estimate of their intrinsic value, particularly where accounting and current earnings obscure underlying economic value.

I rely on two primary valuation approaches:

  1. Asset Value

    I seek companies trading at substantial discounts, on the order of 50%, to economic tangible book value.  While GAAP accounting provides a useful starting point, it can understate the current value of real estate, long-lived assets, and natural resource reserves.  I adjust reported book value to better approximate replacement cost.

  2. Earnings Power

    I seek companies trading well below what their steady-state earnings justify.  I look for situations where the implied multiple on normalized earnings is below 10.  These opportunities typically arise following a disruption to earnings.  After determining that the disruption is not permanent, I estimate steady-state earnings using conservative assumptions based on prior performance.  I place little to no weight on projected growth.

In the strongest opportunities, both valuation approaches independently support the conclusion that the security is significantly undervalued.

The Role of Discipline and Behavioral Bias

Many investors understand the principles of value investing.  The difficulty lies not in identifying undervaluation, but in maintaining the discipline required to act consistently in the presence of uncertainty and market volatility.

I believe behavioral biases are the primary reason investors underperform, even when their analysis is correct.

My framework is designed to mitigate these biases through clearly defined rules governing portfolio construction, buying, selling, and risk reduction.

These rules are essential for me to achieve elevated  long-term returns.

Behavioral Principles

  1. Invest Only in Clearly Undervalued Securities

    I focus exclusively on situations where there is a clear and substantial gap between price and my conservative estimates of long-run economic value using the approaches described above.

  2. Invest in Sustainable Businesses

    The market is always in flux, technology is evolving, regulations change, and demand changes. It is impossible to accurately forecast all the factors that will affect future prices. If the long-run viability of the business is uncertain, I avoid the investment.

  3. Avoid High Leverage

    Highly leveraged firms are vulnerable to permanent capital impairment during downturns, mistakes, or bad luck.  Every business will eventually encounter a disruption.

  4. Evaluate Management Carefully

    Management quality is critical.  I assess whether management controls costs, is forthright with shareholders, avoids value-destructive growth, repurchases shares when appropriate, and pursues M&A only when the price is low and the fit is obvious.

  5. Be a Contrarian

    Outperformance requires diverging from consensus.  I seek opportunities in out-of-favor securities and avoid areas of excessive optimism.

  6. Concentrate in Best Ideas

    Opportunities that meet all these investment criteria are rare.  I maintain a concentrated portfolio of 10 or fewer ideas.  While this may increase short-term volatility, it also increases long-term returns.

  7. Diversify Intelligently

    I carefully diversify across industries to reduce correlated risks.  Thoughtful allocation across uncorrelated sectors provides meaningful diversification, even with a concentrated portfolio.

  8. Approach to Market Timing

    I do not attempt to predict macroeconomic cycles or market turning points.  I am not aware of anyone that has done so consistently. Instead, I focus exclusively on identifying undervalued securities.  If none are available, capital remains uninvested. In this sense, I engage in “micro” market timing: a lack of opportunities signals that the market may be broadly overvalued.

  9. Buying Discipline

    I initiate positions only when a security meets all core criteria. I do not increase the position because the price has risen.  Additional capital may be allocated only after price declines or when fundamentals improve.

  10. Selling Discipline

    I sell positions only when the security achieves my pre-determined, conservatively estimated intrinsic value.  I do not sell because the price has dropped.  I will sell if the original investment thesis fails.  I am leery of selling to chase a better idea.

  11. Be Patient

    Identifying and realizing value takes time.  I require a thorough understanding of the investment thesis to exhibit the discipline and patience necessary to overcome short-term price declines and the discouragement of a long wait.

  12. A Comment on Reducing Risk

    My approach to risk reduction is contained in my guiding principles: investing only with a large margin of safety, only investing in viable industries, avoiding excessive leverage, diversifying across industries, and emphasizing capable management.