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PJ Pahygiannis
PJ Pahygiannis
Articles (144) 

10 Questions With Value Investor T. Aaron Brown

'I'll sell my position for a loss, admitting I'm wrong, when an event materializes that was counter to my thesis'

1. How and why did you get started investing? What is your background?

I have a scenic tour background. Many turns. I was a math teacher and then a youth counselor before I started working in government. I have held agent positions with both state and federal departments. I started investing a few years out of college with a series of trial by error. My primary editor is Seeking Alpha. I like the community as it provides a lot of feedback.

2. Describe your investing strategy and portfolio organization. Which valuation methods do you use? Where do you get your investing ideas?

My investing ideas come from sectors I either grasp the marketing concept for, branding or from friends that have been very enthused. I pair that with some open source screeners: FinViz or even Google Finance. I try to look for small-cap or nano-cap stocks that have growth in revenue and margins. Something promising. The valuation metrics I like include FCF Yield, RORC, price-earnings (P/E) and price-to-tangible book. I also pay attention to opportunities when a stock is oversold. I might use the Relative Strength Index for this or just observe that the negative sentiment is way overblown. I also compare my ideas to counters on Seeking Alpha.

3. What drew you to that specific strategy? If you only had three valuation metrics what would they be?

I think overall I have a value investing strategy and some momentum elements. Again, I like using metrics that scatter across the different financial statements: income, balance sheet and cash flow. I suppose my primary three (I like to use more) would be P/E, price-to-tangible book and FCF Yield. I write a brief digest called "The Swift FCF Yield."

4. Which books or other investors changed the way you think, inspired you or mentored you? What is the most important lesson learned from them? Which investors do you follow today?

"The Little Book That Beats The Market" by Joel Greenblatt (Trades, Portfolio). It's simple, but also explains why being a simple value investor is stressful or not everyone's practice. I think it's a great read. I don't strictly follow the methods of others, I just hear them out. The market isn't a rational being. To beat it requires one part method and one part madness.

5. How long will you hold a stock and why? How long does it take to know if you are right or wrong on a stock?

Possibly the most important question. I think I wrestle with it often. I prefer a long-term hold of over a year. This is the time frame for a tax reduction benefit, but also allows for temporal trade groups to play out all their games. I'm going for +100% returns in all picks, but will exit for conservative gains of 20% if I must. I'm also taking a long-term position in a company because I like investing in their pursuit. I'm an investor at heart and a wannabe activist (Bill Ackman (Trades, Portfolio)) trying to make my point, be loud and be right. Neff Corp. (NYSE:NEFF) and Huntsman Corp. (NYSE:HUN) were just some of the big picks for me. You can read my record at TipRanks where I hold a 4.5-star rating.

I'll sell my position for a loss, admitting I'm wrong, when an event materializes that was counter to my thesis. Case in point, I entered a position into a MLP – BreitBurn (BBEPQ) – due to mass market concern. I bought as a contrarian and for cheap thinking the oil recovery would be my fortune. BreitBurn also had a long history and track record of recovery that made it a better pick among peers. As the MLPs were going bankrupt I thought I still had a chance, albeit risky, with BreitBurn. I eventually sold before its lowest PPS, but I possibly held too long. I'll hang on for awhile. I don't believe in firm stops. Firm stops are just easy targets for bots and smart trade groups to trigger. Firm stops are an old rule of the past in my opinion. You have to be more of a thinker and case-by-case analyst for your portfolio.

6. How has your investing approach changed over the years?

It has become more fundamental and I have become more dedicated to my strengths rather than venture into unfamiliar territory (ugh, MLPs).

7. Name some of the things that you do or believe that other investors do not.

I read U.S. patent filings, I interview CEOs and contact investor relation firms. You can read and listen to my latest interview: "Interview: Veru Healthcare CEO Dr. Mitchell Steiner."

8. What are some of your favorite companies, brands or even CEOs? What do you think are some of the most well-run companies? How do you judge the quality of the management?

CEO Hoby Darling of formerly traded Skullcandy (NASDAQ:SKUL) was awesome; however it was the founder and director that made the last year a soap opera. I like the brand GoPro (NASDAQ:GPRO) and Glu Mobile (NASDAQ:GLUU). I think my interest in them also reflects the good timing that I became involved. If I had bought GoPro at its pinnacle stock price I'd be very upset. Instead, I took a position at more of a deep value juncture and think the company still has brand power.

9. Any advice to new value investors? What should they know and what habits should they develop before they start?

Establish why you think the stock is oversold. How did it get to this low? Then you must believe it through the thick and thin. Market and trader swings are likely to follow.

10. What are some books that you are reading now? What is the most important lesson learned from your favorite one?

I tend to read a lot of philosophy books. Jaques Ellul is important to me. More contemporary thinkers include professor Keith DeRose and professor Peter Unger. Try to read "Living High and Letting Die."

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