Selecting Securities

We select indi­vid­ual secu­ri­ties which ful­fill the regional and sec­tor allo­ca­tions that our tar­get port­fo­lio indi­cates will be the best invest­ment choices.

  • Min­i­mize risks asso­ci­ated with stock selection
  • Main­tain a bias toward rel­a­tive safety and stability
  • We con­firm that the indi­vid­ual com­pany is posi­tioned to ben­e­fit from the pos­i­tive char­ac­ter­is­tics that led to increased port­fo­lio weight for its sec­tor and region. Large, dom­i­nant com­pa­nies min­i­mize the risk of los­ing the ben­e­fit of a cor­rect sce­nario analy­sis because of the more erratic and uncer­tain results typ­i­cal of smaller companies.
  • We assess the qual­ity of the man­age­ment, of account­ing poli­cies, and of the sus­tain­abil­ity of the company’s busi­ness and growth.
  • We are inclined not to own com­pa­nies that grow earn­ings by reduc­ing the invest­ment in their busi­ness or by sys­tem­at­i­cally increas­ing bal­ance sheet leverage.
  • We pre­fer to own com­pa­nies that grow by rein­vest­ing earn­ings from a sus­tain­ably high return on capital.
  • We fore­cast an expected three to five year return for our stocks based on a num­ber of dif­fer­ent sce­nar­ios spe­cific to the stock over an inter­me­di­ate time horizon.
  • Our rule for pur­chas­ing a stock is that it should have an esti­mated min­i­mum inter­me­di­ate return at least 5% per year greater than a com­pa­ra­ble matu­rity U.S. Agency bond.

To sup­port the inter­me­di­ate fore­casts for indi­vid­ual secu­ri­ties, we pro­duce a set of global political/​economic sce­nar­ios for the next 5 years and update them approx­i­mately once every year. These sce­nar­ios are very sim­i­lar in struc­ture and intent to the one year sce­nario fore­casts. They pro­vide a use­ful check on our short-​term esti­mates of the rel­a­tive val­ues of dif­fer­ent asset classes and sec­tors. They serve as guide­lines for com­pany sce­nar­ios in some cases while issues relat­ing to a par­tic­u­lar com­pany or indus­try may sug­gest unique sce­nar­ios in other cases. How­ever, in all cases the global five year sce­nar­ios pro­vide a con­text for think­ing about the lev­els of stock val­u­a­tion, inter­est rates, infla­tion and price lev­els five years hence, ensur­ing that dif­fer­ent stocks are being val­ued in the future against a com­mon val­u­a­tion standard.