Our system is a process that can be described in five steps:
Look for stocks that score well in Quadrix® across multiple metrics — the concept of “clearing many different hurdles.” To get past this first step, stocks must meet certain threshold scores in our Quadrix system in terms of Overall score as well as in important subcategory (Value, Performance, etc.) scores. We look for stocks with Quadrix Overall scores above 80 and preferably above 90.
Investigate pool of high Quadrix scorers rigorously. Make sure the Quadrix numbers are telling the full story. We consider whether the Quadrix numbers have been distorted by mergers or aggressive accounting, and whether earnings and cash flow are telling a similar story.
Examine company and industry prospects, trying to look forward. We want to have an understanding of the company prospects, which can help put the Quadrix scores in perspective. We generally avoid companies with the most uncertain outlooks. We are not necessarily looking for the fastest growers or the cheapest stocks. Rather, we are looking for companies that we believe are in the sweet spot of growth at a good price.
Reconsider valuation. Valuations are a big part of Quadrix, but we want to be doubly sure that the picture painted by Quadrix and other indicators is not already reflected in the stock’s price.
- Look for a catalyst. At this point we’ve got a pool of stocks that meet all four of the above criteria. We believe they are solid companies, it’s just a question of which of these stocks can be true standouts and truly represent what we believe are the best picks in their group or sector. What is it about this company’s outlook that’s likely to drive superior returns over the next 12 months? What is it we think this stock has that’s better than other stocks that also score well in Quadrix? What is it about this company’s position that could drive superior returns over the next 12 months (which is generally the time frame we have in mind – 12-month performance – when buying stocks)?
By relentlessly repeating this five-part process and looking for opportunities in all corners of the stock market, we seek to get a good sense of the opportunities available in U.S. stocks. We also get an idea of whether the stocks currently in our portfolio truly represent our best ideas.
Above all else, we believe success in this business depends on discipline. Without a disciplined strategy, we believe you’ll never be able to duplicate success or reduce the incidence of failure. Our strategy is to consistently and relentlessly search for the best 12-month picks based on our Quadrix-driven system of finding growth at a good price.