By Michael Brush
Stay within your circle of competence. Look for opportunities that others might be overlooking.
Those are some of the key strategies employed by Amelia Weir, who helps manage the Paradigm Select Fund /zigman2/quotes/204846304/realtime PFSLX +2.24% , which has significantly beaten its benchmark and competing funds over the medium term, according to Morningstar.
I recently caught up with Weir, who works at Albany, N.Y.-based Paradigm Capital Management, to learn about investing and favored stocks for us to consider owning.
I summarize five lessons, below, and include nine stocks as examples. The stocks look interesting, in part, because they are of high conviction. Each represent 3% to 4.5% of in her portfolios — which makes them “overweight” positions.
Let’s take a look.
Lesson #1: Think different
If it helped Steve Jobs, it can help us as investors, too. In fact, to think different — the ability to stand apart from groupthink — is a common trait among successful investors.
That probably comes naturally for Weir, given her atypical path into investing. She graduated with honors from Harvard College in literature, and then began her career in investing by editing brokerage notes. Next, she scored a job in stock analysis at Bear Stearns. Along the way, she honed core analytical skills with an MBA from the Wharton School at the University of Pennsylvania.
The upshot? Her roots as an industry outsider probably help her view selloffs as buying opportunities instead of joining the panic selling. One “trick” that will help you here is to simply think long term. Put a different way, resist the temptation to be a market timer. This seems easy on paper but to do this right, you have to make two decisions correctly — the exit and the re-entry.
“Even in a sharp downturn, you can’t afford to go to cash, because if you miss the early days of the snapback, you miss a lot of the move,” she says.
The current market action in her small- and medium-cap (smidcap) space offers a timely example. While narrow indices like the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.36% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.80% bump along near all-time highs, the Russell 2000 Index /zigman2/quotes/210598147/delayed RUT -0.23% was recently in a correction (defined as down at least 10%).
One name from her portfolio that might be worth considering in the weakness: Addus HomeCare /zigman2/quotes/203511287/composite ADUS -0.49% , in home health-care services. It’s down 30% from highs earlier this year, in part because of concerns about the impact of the delta variant on business. But demographics work in its favor, and the company has the strong balance sheet that Weir likes to see.
Another example: AtriCure /zigman2/quotes/200145261/composite ATRC +0.59% , which sells devices used by surgeons perform ablation to treat atrial fibrillation. AtriCure is down nearly 14% from recent highs, but Weir likes the company because it has no direct competitors, and the potential market size is huge.
Lesson #2: Favor smid-caps
Smidcaps get less attention. So you have to do more original work. But that’s also what makes them more attractive. Because they are under-followed and underappreciated, you’re more likely to find bargains. Here are three names Weir singles out from among the top holdings as examples.
Cross Country Healthcare /zigman2/quotes/207320762/composite CCRN +2.20% offers recruiting and staffing services in health care. Co-founder Kevin Clark returned in 2019 to serve as CEO. Since then, the company has made a lot of progress deploying technology to get up to speed with competitors. “But it is not done yet,” says Weir. The company benefits from the aging of the population, and nursing shortages.
Next, consider RadNet /zigman2/quotes/203055435/composite RDNT -0.62% , an outpatient diagnostic imaging company. RadNet is deploying artificial intelligence and machine learning to help radiologists. Its stock has been held back by concerns about declining patient visits due to Covid. But this negative won’t last forever.