HOME  MAP  CONTACT
¤
numeraire.com

 

Global Stock Valuation

_________________________
where facts conquer fiction
ŻŻŻŻŻŻŻŻŻŻŻŻŻŻŻŻŻŻŻŻŻŻŻŻŻ

   

An Approach to Investing

 

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.

 

Selection Criteria for Long-Term Value

 

 Quality (name recognition, franchise, market share, R&D pipeline)

 Catalyst (patents, products, strategy, management, insider trading)

 Resource conversions (mergers & acquisitions, buybacks, etc.)

 Strong balance sheet (low debt, liquid assets, undervalued assets)

 Intrinsic value estimated from discounted expected cash flows

 Market price at least 20% below estimated intrinsic value

 

 


 

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.

 


 

 

 

 

 

 

Disclaimer & Policy
(c) Numeraire 2000-2003. All Rights Reserved.