Philosophy
Common stocks represent an ownership interest in an underlying economic enterprise. We believe a company can best be valued by examining the fundamental characteristics of its business, especially the free cash flow generated by ongoing operations.
Our equity investments share the following characteristics:
- Profitability: Public companies are in business to make money for their shareholders. Therefore, we prefer to invest in those enterprises that are successfully converting sales into income.
- Balance sheet strength: Enterprises with high levels of assets compared to their liabilities allows greater operating flexibility, lower company specific risk.
- Growth potential: Future earnings and revenue growth is what ultimately drives share prices higher. We seek growth due to competitive advantages within the marketpalce.
- Valuation: Companies with low prices relative to the cash flow they generate and assets they own allow for greater appreciation potential.
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Investment Process
Proprietary back-tested fundamental screens are used to find investments. The universe of publicly traded companies with market caps depending on the product. Rankings are analyzed weekly for new ideas and to review current holdings.
The results are analyzed as followed:
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Sustainable Growth Potential: scrutinize the business to understand the marketplace and competitive landscape
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Assets/Liabilities: balance sheet analysis and valuation of tangible and intangible assets. Debt and liability analysis to understand the nature and timing of obligations.
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Earnings Quality: share dilution and one-time charges are avoided
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Management Quality/Shareholder Potential: transparency of annual reports
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Valution: proprietary models used for valutions with in house projections- independence from Wall Street estimates is maintained
Economic and Sector Analysis: Laidlaw Group will over and under-weights certain sectors within its portfolios based on our views of the macro-economic trends. No S&P sector is weighted over 30% of equities.
Sell Discipline: Selling is done to diversify the portfolios with position limits of 8%. Selling is done when fundamental analysis indicates that the security is fairly valued and no longer sells at a discount. Selling is also done when subsequent events and research indicate that the original investment rationale was flawed.
Accounts are monitored constantly.
Portfolio Characterisitcs: Equity portfolios generally consist of 20-25 names with approximately 25% turnover.
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