Paul Sonkin is what many regarded as one of the next generations of investors in value. It belongs to a new generation of investors in value, using strategies of Graham and apply them to modern markets. Sonkin manages two funds: The Hummingbird Value Fund and The Taiser Fund. Sonkin always monitor the large margin of safety in the purchase of a share.
Like Graham, Sonkin focuses mainly on the balance sheet. Sonkin focuses exclusively on micro capitalization shares, which is mostly defined as stocks with market capitalization of less than 50 million. Dollars. Since Sonkin focus on illiquid shares which are monitored by few analysts, he is able to find many bargain. Small businesses are also much easier to understand. While large as Berkshire Hathaway conglomerate consists of dozens of separate enterprises, micro capitalization companies usually work in one area and are much easier to analyze. Sonkin likes to have a diversified portfolio. In an interview conducted with Sonkin, he said that he never liked to put more than 5% of your money in one share.
A strategy which Sonkin stick is the following: let’s say that a company has a market capitalization of 40 million. Dollars, and revenues of $ 1 million. At first glance it seems overvalued stock. However, if you look at its balance sheet and it has $ 35 million cash, then you actually buy the company at P / E of 5. The full formula Sonkin used is (EBIT) multiplied by (1 – tax rate) divided by market capitalization plus debt minus cache. This is the first step in analyzing Sonkin per share.
Sonkin also likes to look for what Bruce Greenwald describes as “failed IPO-so.” As most investors know the value, most IPO-so start with absurd valuations, and rise quickly after the IPO. Many times insiders will withdraw their money, regular investors will realize that the company is too expensive and the price will crash. Sonkin likes to examine these failed IPO-minute to see if the current evaluation warrants the investment. Sonkin portfolio is comprised of several different parts. One part he called the basic operations of the portfolio (General Portfolio Operations); it consists of shares which are in the list of recently reached 52-week low, stocks that are cheap compared to the amount of cash they have, and cheap to normalized earnings. Sonkin will buy preferred shares or convertible bonds.
The other half of the portfolio consists of special situations. This includes spin-offs, restructurings, liquidations and arbitration. He expects the rate of turnover of this part of the portfolio has a higher value of the portfolio with the general operations