Tuesday, February 01, 2000

Investment Strategy

Investment Strategy

Identify and invest in companies that consistently create “economic value added” (EVA) for their shareholders. EVA is measured by determining a company’s cost of capital and comparing it with annual return on investment (ROI) generated by the company’s net operating profit.

Value-creating companies frequently also have high market valuations. Therefore, we also perform intrinsic value analysis on the companies we follow to determine which are the best investments.

We do this by studying long-term earnings expectations and projecting cash requirements (for capital expenditures, working capital etc.) to determine likely free cash flows over time.

We then calculate the present value of these free cash flows to determine the intrinsic value of each company.

Strategy is to seek out and invest in economic value-creating companies that are reasonably priced relative to their intrinsic values.

- Quality and Consistency are the watchwords of successful long-term investing.

- Own EVA stocks consistently.