Today I am going to give you a brief overview of my investment process:

First I look to investment in quality businesses which I understand and that have long term prospects.

My idea is to find the best businesses on the market and analyse them to give me a better understanding of how they operate. I will continue to monitor and follow these businesses, waiting for the right opportunity to buy. You will find that great companies rarely trade at or below their intrinsic values, but on certain occasions, such as the Global Financial Crisis or more recently with the COVID-19 Pandemic, these wonderful businesses will present you with an opportunity to buy them at discounted prices. Through in depth analysis and a solid understanding of the business, you will create the conviction that is required to buy big and continue to hold these investments through volatile markets.

To help me find these wonderful businesses I will apply the following steps:

Reduce the number of investable businesses through a stock filter, looking for low debt and high returns on equity and invested capital. I will also apply an ethical filter. I have found the best screener available is through GuruFocus, I have provided a link in the show notes. Basic Screen
1. I will then create a Watchlist from the stock filter of businesses which I understand and have met my criteria
2. I begin the investment process by selecting a business from my watch list and then read through the companies ASX announcement history and obtain Annual Reports and any other relevant data from investor presentations etc.
3. I then record all relevant data into my spreadsheet, this will help me when it comes to working through my checklist and also provides me with a better understanding of the company’s financials and make any necessary adjustments. I again use GuruFocus to download companies financial reports. They offer up to 30 years worth of data on individual businesses, providing you with the Income Statement, Balance Sheet and Cash Flow Statement, as well as a whole heap of other calculated metrics and ratios.
4. Work through my checklist to establish a quality rating of the business
5. Last stage is to calculate the intrinsic value of the business, in this step I will use a predetermined cash flow figure, an estimated growth rate for the company and will apply an appropriate discount rate and margin of safety to account for the perceived risk of the business
6. When it comes to selling, I will only sell when there is a fundamental change within the business which is likely to result in long term difficulties for the business to continue to operate and produce good returns

In summary, I look for quality business which I understand. I then compile these into a watchlist to enable me to closely monitor and perform in depth analysis. This will help build the conviction needed to buy big and hold, provided your analysis and the fundamentals of the business have not changed.

GWV 010: Margin of Safety

The Growth With Value PodcastBy Alistair CowleyAug 05, 2020