Investment Strategy Statement - Ranjit Thomas, CFA

Jan. 30, 2019 8:04 AM ET3 Comments
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  • I am a value investor who focuses on US stocks and options.
  • While stories may be nice, I zero in on numbers, specifically GAAP earnings and free cash flow.
  • I take a skeptical view of rosy projections and occasionally post short ideas.
  • I do not pay much attention to catalysts as they are hard to find in advance.
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Investment strategy

I follow only stocks listed on US stock exchanges. I may look at an occasional ADR, but my universe is mostly US companies, even though technically some of them may be headquartered abroad. The reason for my restrictive coverage is because such companies report results in a standardized manner, and it is easy to access their financial information. One can also have some level of confidence that the reported numbers are accurate.

I like companies that focus on the right metrics (not adjusted earnings or EBITDA), execute well, and don’t make excuses. I am willing to pay up for quality, but not for hope. I am a purist who believes that GAAP earnings and free cash flow (properly calculated by subtracting stock compensation from operating cash flow) are the gold star metrics to use when evaluating a company. I also look at how the company is allocating capital, and prefer that management is returning some of it to shareholders. I am agnostic on dividends.

I avoid specialized sectors like MLPs, REITs and small biotechs. Everything else is fair game. Industrials, consumer goods, healthcare, technology, financials – bring it on! I pay attention to investability, so mostly large and mid-caps, definitely no micro-caps. My ideal holding period is forever, so that taxes are not recognized on the investment. This has worked fantastically in positions like UnitedHealth (UNH), AutoZone (AZO) and Visa (V), but less so when a company like Alaska Air (ALK) makes a horribly overpriced acquisition after a period of able management.

Our portfolio supplements positions with an options overlay. The primary risk management tools are diversification (50-100 positions), appropriate position sizing, and short exposure. In a particular year, our objective is to do a few percentage points better than half the equity market performance (reflecting the portfolio’s effective net exposure). In a normal year, this would

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This article was written by

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Portfolio manager at a long/short hedge fund. CFA charter holder. Analysis is fundamental, focused on the numbers and takes a skeptical view of company declared pro-forma figures.

Disclosure: I am/we are long UNH, AZO, V, ALK, URI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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