Choice Equities – The Four Ms for Critical Success

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Choice Equities – The Four Ms for Critical Success
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Hidden Value Stocks issue for the second quarter ended June 30, 2021, featuring an interview with Choice Equities Fund‘s Mitchell Scott, discussing the four Ms for critical success.

Choice Equities: Introduction

Mitchell Scott, CFA

Choice Equities Fund (CEF) is an investment partnership that seeks to generate market-beating returns over any rolling multi-year investment period while minimizing the risk of permanent impairment of capital. The fund invests through a concentrated, long-bias portfolio which typically consists of 10 – 15 equity longs, frequently of the small-cap variety.

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Choice Equities approaches equities investing like an opportunistic businessperson and seeks investments offering the potential to double or better over a three-year time horizon. Launched as an independent and standalone investment management firm in January 2017, CEF has compounded capital at 32% per year on a net basis since inception.

It’s been three years since we last spoke, and a lot has changed since then. As such, have you made any significant changes to your strategy as a result?

Not really. We run a long-biased, concentrated portfolio, primarily focused on small to midcap US equities where we can find meaningful return opportunities through value-added primary research. I think our approach is a proven one that can work over the medium and long term in nearly all market cycles. So really, it’s all about execution, which for us, is primarily about picking good stocks. That said, I would say there were a few points in the last year when we administered our approach perhaps a bit faster than we typically have in the past, but really, that had more to do with a rapidly changing environment than with any meaningful changes to our investment approach.

In 2018 you noted Choice used “four critical success factors we call the Four M’s: Moat, Management, Money Flows & More Reinvestment Opportunities.” Have the developments of the past few years led to any changes to this approach?

No. I still think the four Ms moniker that describes our evaluation criteria is a bit hokey, but I still think it’s important to remember what’s important. So as a framework for evaluating companies, it continues to be really useful in helping to keep the focus on what matters in our efforts to identify businesses that are poised for success.

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)www.valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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