Investing Method

Investing Method
CC Investments Masters Class, used with permission

“Davidson” submits:

I spent the weekend doing a screening of the R2000. The method is to look at each companies price history over 15yrs+ and get a sense of long-term growth. I found about 50 names which I then reviewed using Morningstar financial data and settled on about 2doz which offered a good investment opportunity today.


Why There Is No Bitcoin ETF In The U.S. Yet

Digital Payment SystemShould you invest in cryptocurrencies? As with all investments, it depends on many factors. At the Morningstar Investment Conference on Thursday, Matthew Hougan of Bitwise, Tyrone Ross, Jr. of Onramp Invest and Annemarie Tierney of Liquid Advisors joined Morningstar's Ben Johnson to talk about portfolio allocations to cryptocurrencies. Q2 2021 hedge fund letters, conferences and Read More



There is an approach I have developed over 35yrs of investing which has been improved with ready access to information now available from the Internet. Each recommendation comes from viewing the individual company’s CEO, operational history and market history in the context of the current economic cycle and the various themes impacting stock/bond prices, i.e. Fed actions, US$, Momentum Investors, inflation and government agenda. If students follow the process they will come to see how long-term financial performance comes from the CEO and eventually becomes translated into stock prices. Eventually, a student will be able to follow individual CEOs into companies without a record and watch them develop a successful record from scratch. Investing in such companies produces the largest long-term returns because you are there very, very early.


The process of learning:

1)      Begins with using long-term price histories to identify good management cultures as found in $DHR, $GWW, $AZZ

2)      Then one review the Morningstar 10yr Key Ratios and Valuations to analyze how pricing has paralleled financials

3)      Then one reviews the histories of CEO interviews, annual report CEO Letters to Shareholders and Earnings Transcripts (from Seeking Alpha) to understand the CEO’s thinking, expectations and how the CEO acted with regard to unexpected events.

4)      Then use the company and CEO to create an alert list to keep track of events as reported in the media

5)      What the CEO does and says is analyzed in the context of the broad economic environment. A ‘Top-Down’/’Bottom-Up’ process connecting all the dots.


One cannot do asset class and economic analysis without the detail provided from what is occurring in individual companies in multiple industries and vice versa. Whenever one is considering adding to a portfolio, one should always keep in mind that the long-term performance of the SP500 is 6.1%. To out-perform the SP500, one must be selective with all the issues one has in a portfolio. Timing is part of the return calculation with consideration of the economic environment and general market valuation. One always wants to lower the future risk to one’s capital by buying cheaply.. One typically does better waiting till the price of good long-term performance company falls before adding it to a portfolio.


I do a screening every few months. Did so this weekend and the US$ strength which has hurt so many industrials resulted in several doz interesting opportunities. I sent you several which provide a span of businesses my research covers. One can build a nice portfolio of good names as long as one is selective about what one puts in it and at what price one pays for it. I prefer companies whose performance comes from not what they make or by having any proprietary technology. How well a company operates depends entirely on management, especially the CEO. When you know what to look for, many opportunities can become available in any market correction.


I have provided individual recommendations in the past, but have decided to show more on individual security selection to clients because of the recent Wall Street push into Roboadvising/Financial Planning. Roboadvising is the most recent extension of Modern Portfolio Theory and promoted as ‘safe’, ‘scientific’ and ‘best practices’. I view it as getting every investor to do the same thing at the same time which will eventually produce disappointing results for investors and may even result in higher volatility in markets which Wall Street says it should reduce. I am getting more call for my research on individual companies as investors become uncomfortable with this lack of individual selection in their portfolios.


Roboadvising/Financial Planning treats markets as mechanical systems with the past being repeated in the future. While the current market may have elements of past markets, this time we have intense regulation of the financial system, a depressed housing sector, Fed forcing long-term rates to 5,000yr lows in the belief that this eases credit when it does the opposite and a $3Tril derivative fueled Momentum Inflation bet 2010-2014 having gone wrong resulting in a bubble in US$ strength. We also have the US pulling back from its long-term support of global democracy which has caused a flood of foreign capital entering the US real estate and creating a price bubble in coast cities of NY, Miami, Seattle, Boston, San Francisco and elsewhere including large Western hemisphere cities.


Meanwhile Wall Street spends more money on computers looking for deeper meaning in ‘data’ and they miss seeing markets as a ‘Human System’ all together. They continue to miss that the most valuable input comes from specific CEOs operating companies unusually well. Wall Street totally misses seeing that the best data comes from the best CEOs.


Wall Street’s Insatiable Lust: Data, Data, Data

‘The opportunity we are chasing is that in all this huge data there are little nuggets of alpha gold’


Updated on

Previous article Mark Carhart: Not as much opportunity in traditional asset classes
Next article Facebook Inc (FB) Ups The Ante For Monetizing Messenger
Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.

No posts to display