May 1, 2003 — Neil Hennessy believes emotion can be an investor’s biggest enemy. “If emotion enters your investment decisions, you’re mostly going to lose,” he says.
To avoid emotion in investing, Hennessy uses quantitative screens to run Hennessy Cornerstone Growth Fund (HFCGX). He then holds the stocks generated by these screens until he rebalances the portfolio over a four-month period, starting each November. Hennessy believes if you “buy and hang onto quality, you’ll do fine over time.”
Staying with consistent growers is one of Hennessy’s main goals. He believes investors should focus on avoiding losses on the downside, not on how much they can make on the upside. “We don’t try to be the heroes of Wall Street,” he says.
Hennessy has had some success avoiding the downsides. While the fund’s small-cap growth peers lost 23.1% on average for the three years through last month, the fund was down a modest 0.2%, beating most of the category. This year through April 30, Hennessy Cornerstone Growth was up 5.3%, versus a gain of 4.0% for its small-cap growth peers.
To build a small-cap growth portfolio, Hennessy screens for companies with:
*Market capitalizations of at least $135 million.
*Price-to-sales of 1.5 or less.