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. The top decile is analyzed on a bi-monthly basis.
The results are analyzed as followed:
- Sustainable Growth Potential: scrutinize the business to understand the marketplace and competitive landscape
- Assets/Liabilities: balance sheet analysis and valuation of tangible and intangible assets. Debt and liability analysis to understand the nature and timing of obligations.
- Earnings Quality: share dilution and one-time charges are avoided
- Management Quality/Shareholder Potential: transparency of annual reports
- 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.