An article in Bloomberg last month profiles Samantha Lau, co-chief investment officer of small and SMID growth strategies at AllianceBernstein.

Lau subscribes to some basic rules of small-cap investing, including:

  • “Never sell half of your position. If you think something is wrong, exit and revisit.”
  • “It’s never too late to sell a loser.”
  • “A good company is not always s a good stock.”

The article explains that Lau, along with four co-managers, adhere to a “25-year-old process that combines fundamental research and quantitative indicators. Their goal is to “find small companies that can grow faster than the market expects—and minimize the opportunity cost of owning stocks that stumble along the way.” The fund’s performance—an average return of 20% a year over the past decade—shows that they’re onto something.

Using liquidity, growth and quality screens, the article explains, Lau and her colleagues sift through the stocks in the Russell 2000 Growth Benchmark, then divide those names by sector (Lau focuses on tech names). They then assign subjective rankings of between one and five for the companies’ 12- to 18-month outlooks. “We focus on the ones and twos,” says Lau. The team’s quant analyst concurrently runs a weekly model that scores the stocks using factors such as revenue, price and earnings momentum. “They ultimately come up with 200 stocks that they can buy or continue to hold,” the article reports.

If a position becomes dodgy, Lau prefers to act quickly. She says to her team, “If you can’t explain in five minutes why we should keep a holding, we need to move on.”

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