“I like to have information pushed at me, so I’ve set up keyword alerts on something like 3,000 companies, which results in 20 to 25 press releases a day announcing things like management changes, reorganizations or new dividends. Ideas come out of that all the time.” -- Paul Sonkin
Paul Sonkin: Background & bio
Paul D. Sonkin works at GAMCO, the firm run by Mario Gabelli. He previously worked as a Portfolio Manager of The Hummingbird Value Fund and the Tarsier Nanocap Value Fund. Paul is currently an adjunct professor at Columbia University Graduate School of Business, where he teaches courses on security analysis and value investing. He is a member of the board of several public companies including Meade Instruments Corp. He was previously a senior analyst at First Manhattan & Co., a firm that specializes in mid and large cap value investing. Before that he was an analyst and portfolio manager at Royce & Associates, the investment advisor to the Royce Funds. Royce & Associates practice small and micro cap value investing. Prior to receiving an MBA from Columbia University, he worked at Goldman Sachs & Co. and at the U.S. Securities and Exchange Commission. He is a co-author of Value Investing: From Graham to Buffett and Beyond (Wiley Finance)
Paul Sonkin: Investment philosophy
Paul Sonkin is what I would consider one of the up and coming value investors. He belongs to the newer generation of value investors who use the strategies of Graham to apply to modern day markets. Sonkin runs two funds; The Hummingbird Value Fund the Taiser Fund. Sonkin always looks for a large margin of safety when purchasing a stock
Like Graham, Sonkin focuses heavily on the balance sheet. Sonkin focuses exclusively on the micro cap world of stocks, which is mostly defined as stocks with a market cap under $50 million. Since Sonkin focuses on illiquid stocks that are followed by few analysts he is able to find great bargains. Small companies are also much easier to understand. Whereas a big conglomerate like Berkshire Hathaway consists of dozens of separate businesses, micro cap stocks usually operate in one area and are much easier to analyze.
Sonkin likes to hold a diversified portfolio. In an interview I conducted with Sonkin he stated that he never likes to put more than 5% of his money in one stock.
One strategy Sonkin subscribes to is as follows: let's say a company has a market cap of $40 million, and earnings of $1 million, at first glance the stock seems overvalued. However, if you look at the balance sheet and there is $35 million of cash then you are really only buying the company at a P/E of 5. The full formula Sonkin uses is (EBIT) times (1-tax rate) divided by market cap plus debt minus cash. This is Sonkin's first step in analyzing a stock.
Sonkin also likes to look for what Bruce Greenwald describes as "broken IPOs". As most value investors know most IPOs start off at absurd valuations, and rise quickly after the initial public offering. Many times insiders will cash out, regular investors will realize the company was hyped a lot and the price will crash. Sonkin likes to examine these broken IPOs to see whether the current valuation warrants an investment.
Sonkin's portfolio consists of several different parts. One part he calls General Portfolio Operations; this consists of stocks that have recently hit the 52 week low list, stocks that are cheap relative to the amount of cash they have, cheap relative to normalized earnings. Sonkin will also buy preferred shares, or convertible bonds.
The other half of the portfolio consists of special situations. This includes spin-offs, restructurings, liquidations, and arbitrage. He expects the turnover rate of this part of the portfolio to have a higher turnover rate than the General operations portfolio.
Paul Sonkin: Books
Paul Sonkin: Articles
- Portfolio Manager Paul Sonkin Joins GAMCO Investors
- Paul Sonkin - Gabelli
- Interview with Micro cap value investor Paul Sonkin
- Paul Sonkin – We Fish Deep & We Fish Alone
- My interview with Paul Sonkin | Street Capitalist
- Paul Sonkin Interview - The Manual of Ideas
- Hummingbird_Investment_Strategy - csinvesting
- Paul Sonkin's Idea Generation Process
- Paul Sonkin's Picks - Barron's - Wall Street Journal
- Off the Beaten Track with Paul Sonkin
- Micro-cap Value Investing: Tips From Paul Sonkin
- Ragnar Is A Pirate: Paul Sonkin On Forbes.
- My interview with Paul Sonkin of Hummingbird Value Funds
- Paul Sonkin on Steinway: 'Earnings Will Recover'