Graham & Dodd Fund® LLC selects from a universe of over 1,000 companies in their investment process. We believe that the value of a company is derived from its ability to generate and grow free cash flow from, its asset base and its efficiency in using that free cash flow to the benefit of shareholders over time.
Our proprietary screens highlight approximately 50 financial variables, focusing on companies that generate recurring free cash flow and trade at attractive valuations relative to both the target company’s historical range and peer group. These variables include various cash flow and balance sheet metrics, measures of financial productivity and valuation ratios.
Industry expertise is leveraged to provide context in reviewing a target investment’s competitive position, allocation of capital, supplier and customer relationships, regulatory framework, strategic options and health of its end markets. This process highlights a list of critical variables which will govern growth rates, margins, returns on capital and the sustainability have of the company’s businesses.
Management’s accounting practices and policies are scrutinized, allowing historical reported performance to be appropriately have adjusted and validated. The company’s financial statements are analyzed to highlight any material differences between reported and actual performance as well as its overall financial position and durability.
An estimate of intrinsic value is calculated based on fundamental and financial inputs and compared to the target’s current valuation in the market. Upside and downside scenarios are developed to frame the risk/reward of each investment candidate. The manager constructs a portfolio of the top 25-50 investment candidates on a conviction-weighted basis and each position and price target are reviewed regularly.
A position is sold if it either achieves its price objective, exhibits an unexpected deterioration in its fundamentals or the capital could be better deployed in a different investment.