Applied Finance has a disciplined approach to stock selection and company replacements in our strategies. Our objective is to remove analyst bias while taking advantage of their expertise once a company has met our criteria.
Buy Discipline: 5 step process
Idea generation: Baseline valuation screen for top 30% undervalued stocks within each sector
Qualification Analysis: Company Track record, Model accuracy, does company meet criteria?
In-Depth Analysis: Valuation sensitivity analysis, detailed model calibration
Decision Deliberations: Catalysts, Diversification/Concentration analysis, Risk analysis
Committee Decision: Analyst presents ideas and supporting research for committee vote. Super majority needed.
Sell Discipline: 5 Step Process
Typically, companies that are considered for replacement have met their intrinsic value and offer little upside, the fundamentals of a company have deteriorated, or there is less confidence in the original assessment of a company which prompts reevaluation of the position.
Sell Flag: Baseline valuation screen for existing holdings in bottom 50% of sector.
Sell Alert: Look for companies with negative valuation upside or high embedded expectations.
Compare/Contrast with Replacement Ideas: Valuation and fundamental strength comparison as well as how the trade would affect the risk/exposure for each sector and the portfolio as a whole.
Decision Deliberation: Absolute and Relative Valuation assessment, correlation/concentration analysis with existing names.
Committee Decision: Analyst presents Sell thesis and models to committee for vote. Super majority approval is needed for any action.
