In our view, there are no short cuts or rules of thumb. Each company requires a unique research approach and it begins with a careful review of its financial disclosures. We believe a detailed analysis of the disclosure and accounting choices made by management can often provide insight into risks that maybe unknown or underappreciated by the Street.
It looks simple in theory. But in practice, it takes good old-fashioned discipline and hard work. We don’t chase hot stock tips, nor do we rely on supercomputers or fancy algorithms. We don’t have a surefire system for timing the market (all good ways to lose money).
We seek out well-managed companies with unbeatable products or services whose stocks are undervalued or unknown by most investors – and offer the very best to you. For the same we log countless hours researching and crunching numbers before recommending a company.
We look for the following traits in the stocks of companies we invest and recommend:
- Companies that have the ability to generate high returns on capital employed because of the presence of a sustainable moat
- Can grow earnings at a rapid pace without requiring access to outside capital markets
- Are run by able, honest, and owner-oriented managers
- Can be purchased at valuations where the growth component of value equation comes free
Our recommendations incorporate four key analytical categories:
Business Operations: Often the market loses sight of fundamentals and gets caught up in the “story”. Our analytical techniques ensure that the “story” is supported by the fundamentals.
Corporate Governance: Understanding how an executive team is compensated provides insight into its business objectives and accounting choices. We have learned that nothing in accounting happens without a reason and understanding that reason allows us to gauge shareholder value creation and the overall quality of management.
Balance Sheet: Time and time again, accounting scandals and unexpected losses prove that what is “off” the balance sheet is often more important that what is “on” the balance sheet. It is only through a detailed review of financial disclosures that such exposures can be uncovered.
Cash Flow: Companies go bankrupt because they run out of cash, not earnings. Our reports focus on the sustainability of cash flows, not just earnings.