All the companies in which we invest will exhibit a balance of four characteristics which together drive future share price outperformance. Each characteristic is of equal importance. The four criteria we use to select stocks were not arrived at by data mining or by randomly testing thousands of factors; they are simply a codification of what we believe - based on our many years’ experience of equity investing - drives stock prices.
Scroll over the diagram below for details. Follow the link below to see our three stage investment process. You can also download a detailed description of our investment process by registering for more information by visiting the Library.
Positive Capital Management
Evidence that the company is managing its capital to create shareholder value: high and rising returns on invested capital, combined with the ability to reinvest surplus cash flow to grow the productive asset base.
We employ discounted cash flow methodology to compare and contrast all competing investment ideas in our stock universe. We are looking for businesses where the market is undervaluing the current value of future cash flows.
We favour companies with strong, positive and consistent profit forecast upgrades, where revisions are broadly based amongst the analytical community, with low dispersion amongst estimates.
Share Price Trend
We favour companies with an established and rising share price trend, which is supported by a high degree of price 'energy' and which is not about to hit any resistance points.
We select stocks solely on the basis of these four clearly defined and measurable criteria, which are of equal importance to us. Stocks that most closely resemble our ideal company on the balance of all four criteria will be included in the portfolio.