Our 10 Principles of Value Investing

Presenter

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Michael Kops

Kops is a Vice President and Partner. He has 15 years of industry experience, 9 at Heartland.

Transcript

Heartland’s a value equity boutique. We’ve employed the 10 Principles of Value Investing™ since our inception.

We’re bottoms up stock pickers. That means we analyze businesses based on their merits and their prices.

The process is really both quantitative and qualitative.

We do quantitative work of crunching numbers to determine are we buying a financially secure business, and are we getting it at a discounted price?

Our valuation measures are things like:

  • How much are we paying for every dollar of earnings?
  • What's the price relative to the combined value of their assets, or book value?
  • How much are we paying for their free cash flow?

The most important thing is not looking at all metrics in all cases; it’s to apply the right metric depending on the business, or most relevant metric. So for example, it might be a really good idea to use book value when analyzing a bank. However, that might not be the best metric when looking at a tech company.

From a qualitative perspective, it’s not enough to just buy something cheap.

And the qualitative is designed to help us make sure we’re finding good businesses with good business strategies. What is the true quality of the business? So, things like:

  • Do we believe in the management team?
  • Do they have an effective business strategy?
  • They're asking us to buy their stock; are they buying their stock?

Stock picking is what we’re best at. We know how to analyze a business, and we know the 10 Principles™ work. 

 

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Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.

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