This is chapter two of a guide
to REIT stocks. Begin here.

The what

Pen & Paper is a value-oriented stock research publication. Less formally, it can be seen as an art canvas. But instead of color palettes, there are stock screeners. And instead of an artboard, there is a Charles Schwab brokerage account.

While traditionally it is a team of professionals that performs the stock trading activities, practically all of Pen & Paper's investing decisions are done by Noam Ganel.

In other words, Ganel is the research analyst, portfolio manager, chief investment officer and the largest shareholder with over xxxXX X of his money invested in the stock ideas.

This subscription service allows the individual investor to track Ganel's buying and selling activities. Investors who would like to subscribe are asked to first read the Guiding Principles.

The why

Pen & Paper started as a blog in 2016 and grew to become a paid-subscription service. But the stock investing philosophy  invariably stands on the same five beliefs.

First, as the name of the website, Pen & Paper, alludes to, the skills and tools for sensical stock investing are available to us all.

Second, the responsibility for our financial well-being cannot and should not be delegated away.

Third, we are not a private club, only open to those with deep pockets. We keep our overhead expenses to a minimum so that subscribers may receive unmatched service at an affordable price. Our readers average portfolio size is $50,000. That makes the subscription fee 5 basis points.

Fourth, community matters. Especially at times of market uncertainty and duress it is important to belong to one.

And fifth, lifelong learning is a goal that stands on its own. We are lucky to live in a time where there are also financial awards for it.

The how

Pen & Paper is written for those who like to understand how things work and who also like to read. We don't look down at our readers by narrowing our investing ideas into "sound bites."

Each stock idea includes a detailed description of the company, the industry and the product it sells. We write in length about the investment thesis and the risks associated with it. Write to us if you would like a free sample report.  
We sift through publicly-available financial statements of about 15 to 20 companies each week. From that list, we typically find two or three companies  of interest. We then read more about the companies. If one of them meets our “back of the envelope” underwriting, we then perform a deep, bottom-up research and analysis.

We meticulously analyze the business, the product, the management and past capital allocation decisions. We further research the competitive landscape and business strategy. We compare the current valuation to past valuation and the company valuation to peer valuation. In short, we do our homework.

What makes us different

We are outsiders to the investment community in that we have zero interest in managing other people's money. We don't have an opaque fee structure or a misaligned incentive structure.

The investment industry's standard 2/20 management fee model is, from the manager's perspective is a "heads I win tails I don't lose much" incentive structure. In our view, managing other people's money as a source of income should be a thing of the past.

We eat what we cook. Not a single stock idea is suggested before we commit to investing in the stock ourselves. Over 90% of our net worth is held in these stock positions.

We are conservative investors and, perhaps, are too careful in the stock research. We may miss out on a significant market returns as a result. We didn’t buy a single Bitcoin for example.

Our (modern) approach to investing can be stated as follows: there is no reason why intelligent investors cannot manage their funds in today's capital markets. Opening a brokerage account takes a few minutes and with just a few clicks, investors can buy and sell the same stocks, for the same prices, that "sophisticated" investment funds such as hedge funds can.

Our focus

We are bottom-up value-oriented investors. We focus on U.S. listed, publicly traded firms with a market capitalization that is typically less than a billion dollars. Small-cap stock, as this area of the stock market is called, is less glorious than the area of mega-cap stock, such as Facebook and Amazon. But it is also much simpler to understand. To see the difference, read GE's annual report and then read Carriage Services’ annual report.

We typically buy stocks in distressed markets, shunned by reputable Wall Street firms. For example, we bought Seritage Growth Properties at the same investors  retail REITs.

Our portfolio of stocks market value will go radically up and down. Much more violently than the market as whole. As a result, we never have and never will leverage our positions by borrowing funds.  

Our investing criteria is rigid. We like to buy companies that are trading no more than 70% of the Net Asset Value. We rarely pay more than 10 times the normalized earnings per share. We like businesses that show pre-tax return on tangible assets of at least 15% to 20% with a prudent management that is personally invested in the company.

Because of the rigid criteria, similar to our refusal to leverage our portfolio, our future returns will be penalized as we will surely miss out on opportunities that are outside of this focus.