Investment Approach
Disciplined Investment System (DIS)
The Disciplined Investment System (DIS) is a proven individual stock selection system that is proprietary to the firm. At the foundation of our investment management philosophy are three principles:
We invest in businesses, not stocks. When we invest, we become part owners of a business. Therefore, our investment management commitment entails much more than simply buying and selling shares of stock. By focusing on individual companies, and not the stock market, we achieve a sustainable advantage.
We believe in a margin of safety. Part of our investment management philosophy is looking for every opportunity to reduce the chance of a permanent loss of capital. Our mindset is, the greater the margin of safety, the lower the chance of loss.
We have a unique stock market approach and attitude. The first priority of our investment management philosophy is to assess the intrinsic value of each company we invest in, and then we take advantage of stock market pricing when it is favorable. We don’t try to forecast or outsmart daily stock market movements.
The selection process incorporates a rigid three-step system for each holding. The steps are as follows:
Step 1: Quantitative Process – Identify companies that:
- Earn above average return on capital
- Generate excess free cash flow on a consistant basis
- Have a moderate to very low debt
(All three criteria must be met in order to qualify for further analysis)
Step 2: Selection Process
- Seek those companies that have at least 5 years of consistent operating results. Look for excellent visibility of earnings.
- Look for companies that have substantial growth prospects with distinct business advantages
- Concentrate on managements that carry out their responsibility as owners and look for effective execution of their business model.
Step 3: Valuation
- Identify companies that are trading below their intrinsic value
- Invest with a “margin of safety.”
The portfolio consists of 18-25 individual stocks that are “Best in Class.” Preservation of capital and growth opportunities are paramount to this program.