We define "value" according to our proprietary 10 Principles of Value Investing™ — a process through which we routinely evaluate all our stock transactions. Through this consistent framework for research we have been able to deliver long-term investment results while potentially limiting downside risk.
Together, these Principles drive all buy and sell decisions:
Low Price in Relation to Earnings
Historically, low P/E stocks have out-performed the overall market and provided investors with less downside risk relative to other equity investment strategies.
Low Price in Relation to Cash Flow
Strong cash flows give a company greater financial flexibility. In the hands of capable management, it can be the foundation for stronger earnings and, in turn, higher stock prices.
Low Price in Relation to Book Value
Book value is a company’s total assets minus liabilities. Low Price/Book Value stocks offer investors potential downside risk protection. It often suggests sentiment about a stock or sector is overly negative.
Value of the Company
We endeavor to appraise the intrinsic value, or private market value, of each portfolio company. Our goal is to make investments at a significant discount to our estimate of true value.
Financial Soundness
We prefer investing in companies that are not encumbered by long-term debt. During difficult periods, such low-debt companies are able to direct cash flow to investments in operations, not interest expense.
Catalyst for Recognition
We look beyond simply discovering undervalued stocks. We identify specific catalysts that we believe will cause a stock's price to rise, closing the gap between a current stock price and the company's true worth.
Capable Management and Insider Ownership
Meaningful and increasing stock ownership by company officers and directors can be tangible evidence of their personal commitment, and aligns their long-term interest with the shareholders’ interest.
Sound Business Strategy
We meet with hundreds of senior executives to understand and evaluate their strategy. It is also typical for us to speak with customers, suppliers and competitors.
Positive Earnings Dynamics
We favor companies with improving earnings and upwardly trending estimates, as earnings tend to drive stock prices.
Positive Technical Analysis
Technical analysis is a tool useful for avoiding stocks that may already be subject to speculation. We are attracted to stocks that have "bases," trading within a narrow price range which has typically followed a down trend, or bear market.