Our clients’ accounts have grown because of the investment theory we developed and have diligently employed since 1982. The theory is based on five key factors. In our opinion, most investors consider one or more of the following variables when deciding whether to buy or sell a stock:
We believe that the theory works because it is based on common investment factors that motivate the majority of investors. The innovative part of our approach is that we developed a scale that ranges from positive to negative for each of the five factors. The composite score for any stock is derived by combining the individual scores for each of the five variables. While stock prices seldom settle at a level that reflects equilibrium between financial fundamentals and investor psychology, prices have a strong tendency to move toward a state of equilibrium. The results generated by our system help us discern the balance between fundamental investment ratios and investor psychology. Over the years, we have monitored the price movements of numerous stocks in relation to their scores. These scores have given us an indication of where a stock price is headed and how far the stock price needs to move before it reaches equilibrium. The most positive scores have foreshadowed significant percentage gains, while negative scores have indicated that a stock is near its top and will decline.
Our research work starts with a quantitative approach that is based on the scores generated by our evaluation system. We do further qualitative research on the companies that appear to be the most mathematically undervalued. The qualitative research involves an evaluation of management ability and ethics, product strengths, and a company’s strategic plan for its free cash flow. Our goal is to find companies that are well run, have a competitive advantage, are financially strong, are mathematically undervalued, and are under-appreciated by most investors.
Our clients’ accounts have grown because of the investment theory we developed and have diligently employed since 1982. The theory is based on five key factors, which we examine both algorithmically and qualitatively, over an extended period, before making any stock investment:
The most successful investors think of themselves as business owners even if their ownership stake represents a small part of the total shares in a company. We analyze a prospective stock purchase as if we were going to buy the entire company, before buying any part of the company for our clients. We are less concerned with the recent strength or weakness of a stock price and more concerned with the longer-term value of the underlying business. This approach to investing stands in stark contrast to all the momentum investors who buy stocks experiencing strong upward price action while selling stocks that are trending down. There are many variants of momentum investing, but given the large spike in volume that accompanies most sharp stock moves, it is safe to say that momentum investing is practiced by many individuals and investment managers. We typically buy stocks when the share price has fallen, volume is subdued, and investor psychology has turned negative toward a particular company.
We view the pricing of stocks as a perpetual struggle between the fundamental math underlying stock values and the shifting of investor psychology. When the mathematical ratios are favorable for a stock and investor psychology is unfavorable, we believe a potential buying opportunity exists. Conversely, when investors grow to love a certain company’s stock, and the price runs well ahead of actual progress at the company, we think it is time to exit the position or at least reduce the size of one’s holding.
Our objective for clients is to build a portfolio of stocks that represent a share of a substantial and growing stream of revenue and profits. In some cases we may focus on the consistency of this stream, in other cases the growth of it, or the sheer size of the stream. While there are a few companies that have all the elements one is looking for, most portfolios are made up of a diverse mix of stocks that in total will hopefully achieve the goal of part ownership of a sizable, growing, consistent stream of profits.
Our clients’ accounts have grown because of the investment theory we developed and have diligently employed since 1982. The theory is based on five key factors, which we examine both algorithmically and qualitatively, over an extended period, before making any stock investment:
We believe that a company’s long-term success is inexorably linked to a positive relationship between the company and its employees, community, and the environment. While many companies are striving to be better corporate citizens and environmental stewards, we have not found one that is perfect. There is always a balance between positive and negative attributes for any company. Even companies considered icons by many socially responsible investors have issues. Clients hire us to evaluate the weight of the evidence on either side of the social impact scale and make a judgment as to the acceptability of including any given company in their portfolio. If clients disagree with our judgment they are free to let us know. We will customize portfolios by excluding certain companies or entire industries for particular clients if they so request.
Environment
When judging companies from an environmental impact perspective we consider both the pollution created by the company and the importance of its product to society. Industries such as software have a minimal environmental footprint, as their product is nothing more than intellectual property that can be transmitted electronically to the customer. On the other end of the spectrum one would find gold mining companies which use a highly toxic process to extract an ore of dubious necessity. We consider buying shares in companies where, in our opinion, the balance between the social utility of a company’s product, and the environmental repercussions of the manufacturing and distribution process, is a net positive for society.
Management Integrity and Ethics
As shareholders our clients are part owners of a business, and therefore employers of corporate management. When judging executive leadership at a company we consider transparency of reports issued by management, how conflicts of interest are handled, and evidence of long-term planning. We avoid companies where management appears to be self-serving, deceptive, and focused largely on short-term results.
Products and Services
We choose companies that provide products and services that have a positive benefit for society in our opinion. We go further than simply avoiding companies that produce obviously harmful products such as tobacco or weapons. When analyzing the food industry we search for companies that provide healthier choices for consumers. When evaluating an industry such as steel we consider the use of recycled scrap as a raw material. While we avoid some industries entirely due to the noxious nature of their products, other businesses may be less clear from a social perspective and require a relative judgment.
Our clients’ accounts have grown because of the investment theory we developed and have diligently employed since 1982. The theory is based on five key factors, which we examine both algorithmically and qualitatively, over an extended period, before making any stock investment:
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