Peak Sport Products Position Size Decrease 12 24 2015
We are decreasing our position size in Peak Sport Products to 5.0% cost base. We increased our position from roughly 9.0% initial position size to a 15.0% cost base when the company’s share price got down around HKD1.60 well below its NCAV. The share price has since rallied by 40% returning to roughly our initial entry point, but the company also issued shares in the interim. Management may have had good reasons for the share issuance but with the amount of cash on the balance sheet the credibility of management, the company’s management, and the capital allocation abilities are severely in doubt. It is now considered nothing more than a deep value holding. Logic states given the added issues with management the new position size should be lower than the original positions size.
Deep value holdings will now be between 2.5% to 5.0% cost base positions. Higher quality stocks will remain between 5.0% and 15.0% cost base position. The lower position size for deep value reflects the fact that deep value stocks cannot be held for the long term and offers only a one time gain. Deep value stocks often come with issues that create a bit more nervousness around the stock and lead to more comfort with a lower position size.