Many prospective clients are curious about our research and investment process. It is not enough to simply say, “Look at our record”. Over time we have added value by exceeding benchmarks. Clients want to know that we have a disciplined process that enables us to continue this record. So in short, here is how our process works.
We use a matrix of analysis. The matrix has four elements; a top-down review of where in the business world we see opportunities for growth, then a bottom-up in-depth analysis of any prospect as to its quantitative metrics, and qualitative qualifications.
Top down is an informed view of the business environment, not just in the U.S., but in other parts of the world too. We have data from various countries, regions, and industry sectors. Our decisions are not purely data dependent, because data is by its nature hindsight, but it does help us make assessments about turning points and future trends. This is not a mechanistic process, but one that is one honed by experience.
The bottom-up approach focuses on the individual investments themselves. In many cases, we search for businesses that participate in an area where we see opportunity. It could be a relatively new business or service, perhaps one consolidating a sector, one splitting up a company with several non-related endeavors thereby releasing value or any other number of value creations. Sometimes it is as simple as operating a great business well and continuing to produce value every year.
After we have identified particular candidates, we put them through a quantitative screening process. Here the prospect has to meet or exceed a number of financial metrics or hurdles. These are the typical metrics that most investors would be interested in such as profitability, financial strength, past and future estimates of growth rates for revenues, cash flow as well as profitability and some other indicators meaningful to us.
The last analysis is more qualitative. It is mostly subjective but informed by decades of experience in selecting successful investments. Here we try to get a sense of management, the company’s commitment to its shareholders, lack of internal drama, perhaps signifying and well-formed and smooth functioning management team, just to name a few. We’ve seen thousands of companies and know many of the factors that make ones exceptional or merely also runs.
In our analysis, we never expect everything to be perfect, but there are some deal breakers. Only a few make it through our process. This is why we believe we can continue to add value for our investors. So if this high level of investing discipline appeals to you, then talk with us.