| Step 1 |
Idea generation |
- Global network (Built over 13 years)
- Screening (10 monthly screens ) Look for low PE, low P/BV, low PEG, low P/CF, high DY
- General reading of financial and industry literature
|
| Step 2 |
“Screen 99” |
- 99% of ideas get killed in this step, where we ask four basic questions
- Is there CAT risk (can we lose all our money)?
- Is it within our circle of competence?
- Does the valuation jump out at us?
- Is there a moat as reflected in a consistent and high ROE?
|
| Step 3 |
Analysis |
- Analyze 5 to 10 years of financial statements
- Research market and competitors
- Research management
- Run idea through a 70 point check list
|
| Step 4 |
Valuation |
- Assess downside
- Assess 1st year cash flow and determine whether future cash flows will be higher or lower
- Determine initial yield
- Determine margin of safety
|
| Step 5 |
Portfolio weighting |
- Downside determines risk
- Risk determines weighting
- Assess portfolio risk on a regular basis
|
| Step 6 |
Replace/sell |
- Replace with superior investment, irrespective of gain or loss
- When portfolio weighting gets too large
- Sell when fully valued
|
PROCESS
