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Our philosophy and our investment strategy are based on the teachings of Benjamin Graham (the father of modern security analysis) and of his star student, Warren Buffett. Graham’s basic concept of investing only with an adequate Margin of Safety guides all of the investment decisions at Summit Equity. Our Disciplined Investment System is designed to incorporate this Margin of Safety concept into each investment decision we make and to eliminate the fear, hope and greed that so consistently (and, given human nature, inevitably) cloud rational investment decision making.
Our system focuses on five areas:
1. Financial Strength
We invest only in companies with the strongest balance sheets. These companies employ low to moderate debt and/or possess high interest coverage ratios. Financially strong businesses provide stability in downturns and protect shareholders from dilution by new debt or equity.
2. Financial Performance
We invest only in companies that earn an above-average Return on Capital, generate free cash, and have a consistent operating history. In our view, these factors are prerequisite to selecting investments that offer solid growth prospects without excessive risk.
3. Sustainable Franchise
We invest only in companies with clearly discernible business prospects. If we can’t see why we would own a business 10 years from now, we won’t own it for even 10 minutes (Buffet). In this way, we select only the most sound growth businesses for your portfolio and consistently avoid the pitfalls of short-term trading.
4. Effective Management
We invest only in companies with managers that demonstrate their alignment with shareholders. We require that management be honest and candid. We require that capital be allocated by the business in a way that is relatively easy to understand and that serves the long-term interests of shareholders.
5. Valuation
We invest only in shares that reasonably reflect the underlying or intrinsic value of the businesses they represent. We continuously monitor a range of valuation metrics across a large group of high quality companies in order to ensue that the Margin of Safety in our investments is not compromised.
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