Investment Policy: The first step is the client interview in which the Investment Policy is established. During this interview, Brick Financial works with you to define your investment objectives. (see Investment Policy Process)
Security Selection: Our equity investment process is analysis-driven, employing a disciplined, bottom-up in-house research process to identify companies that meet our value criteria. Instead of selecting individual securities for every client we run several predefined portfolios with specific and distinct investment objectives. Consequently, client portfolios will be made up of one to several of our predefined portfolios.
In evaluating potential investments for each portfolio, we focus on the following characteristics:
A good, if not great company whose business model is understandable and whose goods or services are in high demand, but are not easily duplicated by competitors
A management team that is honest and forthright, has a high level of ownership in the company and demonstrates intelligent allocation of capital
High free cash flows, high returns on equity, and high returns on invested capital
A strong balance sheet with low debt levels
A company whose stock price is significantly lower than our estimate of underlying intrinsic value
Our criteria will usually dwindle the universe of thousands of publicly traded companies down to a select list of approximately 250 companies representing all industry sectors. Using a proprietary multivariate selection process, we will once again reduce this list of securities for inclusion on our "Focus List".
Fundamental Analysis: We regularly put the securities on our Focus List through an intensive fundamental analysis process. It may include, but is not limited to, a thorough review of financial statements and SEC filings, reviews of articles and media information, and study of the investment opinions of Wall Street analysts. Ultimately we use our own judgment in evaluating the economic standing of companies.
Valuation Methodology: In an attempt to determine the intrinsic value of companies on our Focus List we will rely on factors such as, but not limited to, the discounted value of its projected future free cash flows, the company’s ability to earn returns on capital in excess of its cost of capital, private market values of similar companies, the costs to replicate the business and of course traditional measures such as the price-to-earnings ratio and price-to-book ratio. Qualitative factors, such as an assessment of the company’s products, competitive positioning, strategy, industry economics and dynamics, regulatory frameworks and more, may also be considered.
Depending on market conditions, company specific fundamentals, and valuation, portfolios of anywhere from 10 to 35 stocks are typically built from that Focus List.
Portfolio Management >>