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legal & disclaimers

Manny Weintraub, CFA

Founder, Principal and Portfolio Manager

GARP EQUITY
STRATEGY OVERVIEW

Our goal is to have the opportunity to participate in the potentially high returns of the equity market while at the same time limiting downside risk through disciplined stock selection. Throughout our investment process, we take specific steps to uncover opportunities and to limit risk. Both our All Cap Domestic Equity and Mid Cap Domestic Equity strategies are invested using the same process.

Investment Process

1. Stock Price Dislocation 

Within the universe of U.S. companies we look for those stocks that are experiencing some form of dislocation, such as a substantial decline in price or a spin off from a parent company. This helps us limit risk by reducing the value we are asked to pay for our part-ownership of a company.

2. High Returns on Invested Capital

Within that segment, we screen for those companies with high returns on invested capital. This can work to limit risk as these companies have the potential to buy shares alongside us with the excess capital they generate.

3. Assessment

We then qualitatively assess why this high return business has declined in price. Is this the peak of a cycle, and are their high-returns unsustainable? Has a fundamental shift occurred in their business? This assessment can reduce the risk of investing in a company in the early phases of a long decline.

4. Best and Worst Case Financial Scenarios

If we think the company still has good long-term prospects in spite of a recent decline, we create a best and worst case company financial model and assign best and worst case valuations to our three-year-out forecast. This results in high and low future stock price targets. The worst case models force us to confront the bear case for a potential investment - compelling us to ask, "Is the risk worth the potential reward?"

If, in the final analysis, we can buy a high-return company with good prospects at a double-digit discount to the midpoint of the high and low price targets, then the stock is a buy. This process enables us to buy what we believe are growth companies when they are priced at a value level. Simply put, we invest where we believe the best risk/reward can be found.


 

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