WE RELY ON OUR OWN RESEARCH AS TO WHY A COMPANY MAY GROW PROFITABLY FOR THE LONG TERM.
SEARCHING FOR QUALITY
We look for economic characteristics of high-quality companies: strong, predictable cash flow generation, sustainable high returns on capital, and attractive growth opportunities. We do not invest in companies whose business models we cannot understand or whose potential success is overly dependent on macro factors or affected by regulatory interference.
Once we find these companies, we typically have a very long holding period. This is important given our belief that the best outcome is achieved by holding great businesses for the long term.
PROPRIETARY RESEARCH
Our bottom-up, fundamental research is very company specific without regard to the macro economic picture, which we consider to be unpredictable.
For every company evaluated, we formulate a thesis as to why a company will achieve extraordinary success. Each thesis must be validated by internal research. We take into account long term considerations rather than focusing on short-term market expectations or economic cycles. Most importantly, we employ a team-based approach, drawing on decades of cumulative investment knowledge.
COMPREHENSIVE APPROACH
Our due diligence looks at the business model and its competitive advantages, the depth and skills of the management team, as well as the financial history of the company.
We turn to a multitude of sources to build the most complete perspective of the business. Finally, our collaborative team-based approach allows us to distill a wealth of information into deliberate decisions.
OUR DISCIPLINED RESEARCH PROCESS IS FOCUSED ON DETERMINING WHETHER A PROSPECTIVE COMPANY MEETS OUR DEFINITION OF QUALITY
COMPETITIVE
DIFFERENTIATION
- Understanding the business and its competitive strengths
- Learn the nuances of the industry – customers, suppliers and competitors
- Extensive evaluation of existing management, their capabilities, skills, and focus
GROWTH
TRAJECTORY
- Analyze business growth on an absolute and comparative basis
- Look for long term internal growth assumptions with above-average potential
- Evaluate whether organic growth exceeds that of the overall economy
MANAGEMENT
CAPABILITY
- Evaluate the background and skill set
- Establish whether management is aligned with shareholders and have a long term strategy to build shareholder wealth
- Extensively review management’s attitude toward corporate governance, as well as environmental and social issues.
FINANCIAL
STABILITY
- Assess historical financials
- Understand the critical components to cash generation and factors that will determine future cash flow growth
WE BUILD DETAILED DISCOUNTED CASH FLOW MODELS TO ASSESS THE LONG TERM VALUE OF THE BUSINESS.
AN ESTIMATE OF INTRINSIC VALUE
Our valuation models project cash flow generation in the coming seven to ten years, incorporating our independent, proprietary inputs. These cash flows are then discounted at a reasonable rate to derive what we believe to be the intrinsic value of the company.
A TOOL FOR TESTING SCENARIOS
Scenario analysis is a process of examining and evaluating possible events or scenarios that could take place in the future and predicting the various feasible results or possible outcomes. By testing various potential changes to the assumptions in our model to presume both favourable and unfavourable events, we formulate a series of outcomes to provide a clearer perspective on the expected returns and risks a potential investment may offer.
RISK IS NOT VOLATILITY — It IS THE PROSPECT OF PERMANENT LOSS OF CAPITAL.
Laurus portfolios are constructed on a bottom-up basis, which is the foundation of our risk mitigation framework.
RISK
Measured at the portfolio level; structural limitations include specific stock and sector weightings, liquidity, specific stock correlation, and valuation discounts.
MODELING
Client portfolios are managed strictly to investment models and measured monthly by the compliance team to ensure uniformity across clients.
TRADING
Continuously reviewed to help ensure that excessive activity is avoided and to measure the impact of trading against portfolio value.
