Requires
investing in companies that consistently create value for shareholders.
Value is derived from returns in excess of the cost of capital. This excess
return is defined as "Economic Value Added" (EVA). Every company
we invest in generates EVA.
Requires
us, at times, to be risk-averse and willing to meaningfully reduce market
exposure when uncertainty and valuations are elevated, even if momentum
continues to push markets higher. Market index returns do not dictate
our investment decisions.
Drives
our investment ideas. We avoid passively subscribing to consensus estimates
and opinions. When necessary, we ask questions directly of corporate management.
We use our own proprietary model to assess a company’s valuation
before investing. Through internal research and analysis, we form our
opinion of the economy and markets.
The
valuation model we use to analyze capital market investments lends itself
to determining the valuations of privately owned small businesses. Analysis
of a company’s historical financial statements combined with cash
flow projections enables us to discount future free cash flows to present
value, thereby determining intrinsic valuation.
Assessing operating cash flow and the implications on valuation is critical for a small business owner contemplating either the sale or purchase of a business. We are also able to help business owners improve value creation and measure EVA.