Tim Guinness's firm uses four factors—value, quality, earnings, and momentum—to screen 8,000 stocks down to 80. While momentum is crucial for this initial filtering, it is not a primary factor in the final "last mile" decision, which is based on a deep dive into company fundamentals and valuation.
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Pilecki argues that classic value investing fails by ignoring momentum. He waits for a stock's chart to form a base before buying and lets winners run past initial price targets if momentum is strong. This avoids buying "falling knives" and cutting winners short.
Tim Guinness's firm uses 30 equal-weighted stocks to diversify risk. This forces a "one-in, one-out" policy, compelling the team to sell their least-favored holding to add a new one, thus overcoming the common investor weakness of being poor at selling.
Effective due diligence isn't a checklist, but the collection of many small data points—revenue, team retention, customer love, CVC interest. A strong investment is a "beam" where all points align positively. Any misalignment creates doubt and likely signals a "no," adhering to the "if it's not a hell yes, it's a no" rule.
Identifying a stock trading below its intrinsic value is only the first step. To avoid "value traps" (stocks that stay cheap forever), investors must also identify a specific catalyst that will unlock its value over a reasonable timeframe, typically 2-4 years.
Gardner actively seeks stocks that have already appreciated 30-90% in recent months. Instead of waiting for a pullback, he views this momentum as a key indicator that the market is recognizing a company's fundamental strength and cultural relevance, signaling future outperformance for the best businesses.
Inspired by Charlie Munger, this investment strategy is built on three common-sense pillars: maximizing earnings growth, maintaining valuation discipline, and focusing on downside risk. The goal is reliability and avoiding major mistakes rather than chasing spectacular, high-risk wins.
The firm doesn't just decide a factor is obsolete. Their process begins by observing within their transparent 'glass box' model that a factor (like book-to-price) is driving fewer and fewer trades. This observation prompts a formal backtest to confirm its removal won't harm performance.
Instead of focusing on relative performance against an index, the speaker sets an absolute goal of doubling capital every five years. This forces a highly selective process, screening for businesses with the potential to be 10x, 50x, or 100x winners, and treats benchmarks merely as an indicator of opportunity cost.
Crossmark Global Investments' analysis reveals that while excluding sectors for ethical reasons causes short-term performance deviations, long-term returns (over 1, 3, 5, and 10 years) are comparable to unscreened portfolios. Strong fundamental analysis remains the primary performance driver.
While many investors screen for companies with high Return on Invested Capital (ROIC), a more powerful indicator is the trajectory of ROIC. A company improving from a 4% to 8% ROIC is often a better investment than one stagnant at 12%, as there is a direct correlation between rising ROIC and stock performance.