Y H & C believes that researching individual investment opportunities requires extensive work before capital is allocated. Y H & C tries to earn the highest returns possible, so the majority of investments will be in the common stocks of growth companies. However, as there can be great possibilities for higher returns in value stocks, Y H & C also is a value investor. The reality is value and growth investing is tied at the hip.
The following are steps Y H & C goes through when looking at unique investment opportunities, in particular individual equities in the public markets. It may be the case not all steps are implemented, especially if a security is one which has been owned for many years and are very familiar with.
- Fundamental analysis of the industry of the specific issue
- Competitive positioning of the individual company within its industry relative to its competitors.
- Analysis of the past, present and future operations of the specific company, with emphasis on growth opportunities.
- Fundamental analysis of the operating performance of the specific company- metrics like gross margin, operating margin, net margin, return on equity, return on assets, turnover ratios, inventory and accounts receivable ratios.
- Fundamental analysis of the financial situation of the company, including balance sheet metrics like cash levels, debt levels, contingent liabilities, lease obligations, and off balance sheet arrangements.
- Analysis of the quality of earnings of the company.
- Analysis of the corporate governance of the company including the role of the CEO, board of directors, nominating, audit, and compensation committee structures and conflict of interests or independence of the board.
- Analysis of the management of the company and any conflicts of interest that may exist.
- Specific research into a company’s financial filings- including annual report and 10-Q filings, along with any 8-K filings, insider trades, and recent news involving the company.
- Valuation Analysis of the current market value of the enterprise, market capitalization, and comparison of those metrics against industry competitors and the overall market.
- Valuation analysis of the current issue versus its operating metrics.
- Analysis of management ownership of the equity, stock option dilution, and share buyback possibilities.
- Analysis of free cash flow of the company versus competitors.
- Application of the current economic environment and the effect on the specific company.