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Philosophy & Process

Our Philosophy

Argent Capital® invests in change. We believe that changing companies, driven either by internal or external factors, frequently result in stock mispricing. Argent’s Change-Based InvestingSM strategies construct high conviction portfolios designed to maximize opportunities to benefit our clients.

 

Our Change-Based Investing Process

We employ a disciplined, bottom-up approach, yet our investment process is designed to be flexible and responsive to opportunities. Argent approaches portfolio management through a Change-Based Investing process, which is applied across all of our portfolios. We begin by looking for companies that are undergoing a fundamental change. From there, we search for names that exhibit three key characteristics in relation to changes going on within the company. When a name displays all four aspects of change, we believe it has strong potential to generate superior returns over the long term. Our analysts need to identify the following four aspects of change before a stock is added to a portfolio:

 

Identify Change

Argent looks for companies undergoing a fundamental or significant change. This type of change or catalyst may come in the form of new management, new products, changes in business strategy or sustainable changes in the industry.

Evaluate Change

Our analysts develop risk-reward scenarios in order to evaluate the change in a company. This step assists us in making certain that the change is not already priced into the stock.

In our risk-reward scenarios, we evaluate the potential upside to the value of the company if we are correct about the impact of the catalyst. We also craft a realistic downside to the value of the company if we are incorrect about the impact of the change.

Quantify Change

Identifying a change within an organization isn’t enough for Argent. We also need to quantify the change by ensuring the change is going to accelerate growth for the business.

Verify Change

An important step for our analysts is to verify the change that is occurring. Although we speak with management teams, we want to take things a step further. We make it a point to seek out individuals from the public or private companies in the industry who can offer unbiased information about a company or industry. These industry contacts assist us in identifying if there is any disconnect with what we are hearing from management teams and other research outlets. With a smaller number of names in the portfolio, Argent can take the time to include this critical step in our process.

The vast majority of companies we review do not fit our process and as a result, we are left with a highly selective portfolio of names. It is rare that a company stands up to each of our four aspects of change. Identifying stocks that bring together the intersection of all four of these aspects is difficult and time consuming, but we believe it is what sets our process apart. It’s the Argent Capital Difference.

1. Identify Change

Argent looks for companies undergoing a fundamental or significant change. This type of change or catalyst may come in the form of new management, new products, changes in business strategy or sustainable changes in the industry.

2. Evaluate Change

Our analysts develop risk-reward scenarios in order to evaluate the change in a company. This step assists us in making certain that the change is not already priced into the stock.

In our risk-reward scenarios, we evaluate the potential upside to the value of the company if we are correct about the impact of the catalyst. We also craft a realistic downside to the value of the company if we are incorrect about the impact of the change.

3. Quantify Change

Identifying a change within an organization isn’t enough for Argent. We also need to quantify the change by ensuring the change is going to accelerate growth for the business.

4. Verify Change

An important step for our analysts is to verify the change that is occurring. Although we speak with management teams, we want to take things a step further. We make it a point to seek out individuals from the public or private companies in the industry who can offer unbiased information about a company or industry. These industry contacts assist us in identifying if there is any disconnect with what we are hearing from management teams and other research outlets. With a smaller number of names in the portfolio, Argent can take the time to include this critical step in our process.

Argent Selectivity

The vast majority of companies we review do not fit our process and as a result, we are left with a highly selective portfolio of names. It is rare that a company stands up to each of our four aspects of change. Identifying stocks that bring together the intersection of all four of these aspects is difficult and time consuming, but we believe it is what sets our process apart. It’s the Argent Capital Difference.

The Argent Capital Difference

The vast majority of companies we review do not fit our process and as a result, we are left with a highly selective portfolio of names. It is rare that a company stands up to each of our four aspects of change. Identifying stocks that bring together the intersection of all four of these aspects is difficult and time consuming, but we believe it is what sets our process apart.

The Decision Process

Daily Meetings

Teams keep a constant stream of communication.

Investment Team Review

Analysts present comprehensive briefings on potential names.

Bull vs. Bear Debate

Formalized debate process designed to challenge a potential investment.

Portfolio Manager Vote

Portfolio managers have voting responsibility while analysts provide support.

Quarterly Debrief

Formal reviews every three months to analyze what was or was not effective.

The Sell Process

We sell a stock for any of four reasons that are either process driven or event driven.

Fundamental Breakdown

(Process driven) — The fundamentals of the company begin to break down.

Opportunity Cost

(Process driven) — Assets can be moved into more attractive names.

Permanent Impairment

(Event driven) — Some type of event (e.g., regulatory change) has a permanent impact on the company.

Negative Catalyst

(Event driven) — An event causes a negative reaction for the company (e.g., accounting issues, negative news regarding management).

Our Large Cap Growth Strategy

Argent Capital’s Large Cap Growth Strategy consists of 30-35 stocks that demonstrate characteristics consistent with our Change Based InvestingSM approach.

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Our Dividend Select Strategy

The goal of Argent Capital’s Dividend Select strategy is to generate a dividend yield for investors that is between 125-175% greater than the market as measured by the S&P 500® Index.

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Our Small Cap Core Strategy

Argent Capital’s Small Cap Core Strategy is a bottom-up fundamental strategy consisting of 60-80 U.S. stocks with market capitalizations of less than $3 billion each.

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