I look for misunderstood companies who’s shares are trading at a discount to their intrinsic value. I believe in looking for companies in areas where there has been forced selling without regard to the fundamentals of the security (e.g., spinoffs, merger securities, index reconstitutions). I also focus on finding opportunities in areas of the market that leave a bad taste in most investors mouths (e.g., OTC stocks, micro-caps, nano-caps). At the end of the day, a business is a business. Liquidity, or lack thereof, can be the friend of the investor who holds for the long-term.
Unless there is an activist investor that is trying to solve an agency problem, shareholder interest needs to be aligned with management interest in the companies I purchase.
Additionally, the reason for undervaluation needs to be sound. There also needs to be a clear catalyst in the future that will correct the inherent undervaluation.
My satellite portfolio is extremely concentrated, as I only invest in companies where I have a high conviction of the thesis. The only way to get high conviction is by doing the work yourself. Do your own due diligence before making any investment decisions.