"Our ability to add value is centered on the diligent and consistent implementation of our investment philosophy."
Our process begins with the determination of which stocks fit our contrarian universe. We screen for:
- Recent price under performance
- Extreme corporate liquidity
- Fundamental valuations at low historical levels
Screen results are reviewed and discussed by the investment team and decisions to proceed with in-depth analysis on individual companies are finalized. When we analyze a company, we use Wall Street research to come up with our baseline fundamental expectations for the future, and then we analyze the inputs used in the assumptions to gain further comfort in our own expectations.
Analysis includes scrutiny of all major financial statements with particular attention paid to the balance sheet. To become confident with our future expectations, we must completely understand management’s business plan and their ability to execute it. This process requires conversations with:
- Corporate management
- Industry experts
- Financial analysts
- Corporate competitors
- Corporate suppliers
- Sometimes employees
These communications can be oral, written, long-distance, or in person depending on what the particular situation dictates.
Once we are comfortable with a two-three year outlook of fundamentals, we apply historical, average valuation parameters for the company. This price becomes our sell target. We will not purchase a stock that does not have 50% appreciation potential from our purchase price to our sell target.