Stock Selection

The number of equities utilized in the investment portfolio will tend to be a reflection of the overall attractiveness of the stock market. To qualify for investment, however, stocks must satisfy the two key criteria outlined below. This disciplined, rigorous approach to stock selection generally has generated consistently good investment results.

Valuation

First and foremost, stocks must be undervalued based on one of the techniques employed by the firm (such as earnings payback model, low price-earnings ratio or low price-cash flow ratio relative to expected growth, or stock price below asset value). Purchasing stocks that have sold off significantly or that are selling at depressed levels helps to control or to minimize risk.

Earnings-Per-Share (EPS) Momentum

To provide the impetus for capital appreciation, a company must display improving EPS comparisons or be on the verge of favorable EPS comparisons. As a corollary, the firm's profitability should be stable or improving.

Good Business and Management

Purchases are concentrated in businesses that have attractive fundamentals and are run by managements with good track records and who make shareholders' interests a priority.

Insider Ownership

Managements that own meaningful amounts of the company's stock tend to care more about the level and direction of the stock price. Management probably will be more in tune with, and act in, the shareholders' best interests.