MicNOVA Investment Philosophy
(Draft/10-2-08)
Mission Statement: We are long-term investors who invest in quality companies at a reasonable price. We want companies that grow their earnings based on a sound business model. We will seek to develop a diversified portfolio. One of our primary assessment tools is the Stock Selection Guide but we also use other objective sources (i.e. Morningstar, S&P and Value Line). Our terms are defined as:
•"long-term investors" We buy stocks for the long term; only replace a holding if the company's fundamentals deteriorate or the company becomes overvalued. We do not try to time the market.
•"quality companies" Such companies have generally have a growth rate higher than that of the overall economy. They also have strong financials.
•"reasonable price" We look for stocks that sell below their intrinsic value which may be determined through such assessments as discounted cash flow and projected average returns. We prefer companies with potential price earnings (PE) ratio expansion; companies with high PEs are generally avoided, especially if they have been contracting in recent years.
•"sound business model" Management demonstrates consistent growth in their historical financial reports. The business plan clearly states how they make money and how they intend to grow their revenues. Other criteria such as those used by Morningstar in their stewardship rating may also be considered.
•"diversified portfolio" We will balance our portfolio by industry and company size as measured by revenues/sales (small companies with sales less than $500 million; medium companies with sales between $500 million and $5 billion; large companies with sales greater than $5 billion).
•"Stock Selection Guide" There are several formats for this stock evaluation tool: (1) it is produced by stand-alone software such as Toolkit, Classic, Stock Analyst or Take Stock; (2) it is available on the Betterlnvesting website through online tools; (3) it may be calculated using a paper format.
Objectives:
•We will increase our knowledge about investing in the stock market through educational programs, classes and stock studies.
•We will develop buying and selling criteria as guidelines for decision-making.
•We will buy individual stocks and ETFs (Exchange Traded Funds).
•We will evaluate industries as well as companies within those industries.
•Try to stay fully invested and to keep cash position below 5% once the club has been in existence for six months.
•Each partner assumes responsibility for following at least one stock in the portfolio.
•Limit the portfolio to a manageable number of stocks—no more than two stocks per partner with a maximum of 20 stocks.
•Each partner is responsible for presenting an educational program and a stock at a club meeting.
•We will use Portfolio Management Tools within Toolkit and other such tools available to manage our portfolio.
•We will balance our portfolio by company size (based on revenues) with a goal of 25% small cap; 50% mid-cap; 25% large cap.
•We will diversify by sectors as much as possible, depending on the financial health of the industry; we will use Value Line's industry ranking to select the best (top third in timeliness, or "moving up.")