|
Our
recommended investment objective
is preservation of the purchasing power of capital with long-term
appreciation of capital.
Our recommended investment approach, called
Intrinsic Value, involves in-depth original research and customized valuation
models for each company studied. The proprietary
investment-specific valuation models estimate intrinsic
value which is based on discounted cash flow analysis. Valuation
appraisals
are based on intrinsic value estimates, private market
transactions, quality assessment and other aspects of investment assets.
Our recommended focus is dominant companies generating
freely-available cash flow to common equity with good management in
industries that are currently not favored by the
investment community. No industry group or investment
vehicle is ruled out of consideration in advance.
Although short-selling, buying on margin for leverage, and hedging techniques
using derivatives such as futures and options are not
inappropriate in principle, this approach does not rely on
these methods.
Our recommended buy and sell criteria are as follows.
Companies are to be purchased only when their share price
trades below intrinsic value or fair value as defined by discounted cash
flow techniques. Companies are added to the
portfolio only if there is a sufficient safety-margin
discount. Companies are to be sold when their share price
reaches the larger of intrinsic value or a premium based
on the original purchase discount. If stock in a company
is sold when no other equity opportunities are available
with the required margin of safety, the sale proceeds are
to be invested in cash or bonds. This patience and discipline
help to preserve capital.
Evaluation is absolute, not relative to other securities. A catalyst for
the new valuation is required to establish a logical reason based on
cause and effect. A catalyst is not identical with an event in
event-driven strategies that are usually limited to mergers, spinoffs,
and distressed debt before or in bankruptcy.
Concentrated portfolios generally offer the best
opportunity to produce superior long-term performance.
Investments can safely be concentrated on the best ideas, and
reasonable portfolio diversification can be maintained across
industries and economic sectors. As defined in the U.S.
by The Investment Company Act of 1940, Section 5(b), such concentrated
portfolios could be classified as a "non-diversified
company." Concentrated equity portfolios might contain fewer than
20 stock issues. Concentrated equity positions might be held for
extensive periods to achieve larger capital gains. Thus
portfolio turnover might be less than 100 percent per year, thereby
creating tax efficiency and cost efficiency that are correspondingly
greater than with higher turnover.
|
|
 Catalyst
(patents, products, strategy, management, insider
trading) |
|
|
|
Approach |
Description of Investment Approach
|
|
Intrinsic Value |
Buy when underpriced by an absolute
margin.
Sell when overpriced by an absolute
margin.
Safety margin equals intrinsic value
minus share price.
Intrinsic or fair value is absolute DCF value
per share.
|
|
Momentum |
Buy on relative price strength.
Sell on relative price weakness.
Expect price trends.
|
|
Contrarian |
Buy on relative price weakness.
Sell on relative price strength.
Expect price-trend reversals.
|
|
Value-Style |
Buy high value defined by relatively
high BE/ME.
Sell low value defined by relatively
low BE/ME.
Value is defined by a price ratio
(BE/ME, E/P, D/P, etc.) with share price in or part of the denominator.
|
|
Growth-Style |
Buy high growth defined by relatively
low BE/ME.
Sell low growth defined by relatively
low BE/ME.
Value is defined by a price ratio
(BE/ME, E/P, D/P, etc.) with share price in or part of the denominator.
|
|
|