Investment Approach

Douglas Cannon
Chief Financial Officer
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Reasons For Our Success

  • WE ARE TOTALLY FOCUSED on a well-defined stock universe and we know these stocks better than any other investment management firm.
  • WE CAN MOVE QUICKLY TO EXPLOIT TEMPORARY MARKET MIS-VALUATIONS, since we have already done the detailed fundamental valuations of many of these stocks. For example, the market often initially overreacts to surprising good or bad news about a company.
  • OUR PORTFOLIO MANAGER first began analyzing Texas stocks in 1976. He has worked for many years with the same universe of stocks.
  • OVER MANY YEARS, we have revised and fine-tuned our proprietary computer investment database and stock selection criteria.

Limiting Risk

  • We use time-tested CONSERVATIVE VALUATION MEASURES such as low price-to earnings (PE), low price-to-book value, stocks selling at the lower end of their one, three, five-year price ranges.
  • Quantitative measures are just the beginning of our analysis. Stock selection is based on IN-DEPTH FUNDAMENTAL RESEARCH, often done over several months.
  • We AVOID HIGH-PRICED, “high growth” companies in which investors are betting on long-term high growth.
  • WE DO NOT USE stock price “MOMENTUM INVESTING” OR STOCK-PATTERN CHARTING, known as “technical analysis”.
  • WE DO NOT TRADE IN AND OUT OF STOCKS ON A FREQUENT BASIS. Our average holding period for a stock is about two years.

Investment Objectives

  • Continuation of OUTSTANDING LONG-TERM CAPITAL GAINS
  • MINIMIZE RISK by using a proven CONSERVATIVE VALUE investment approach
  • Use of DIVERSIFICATION among industries

Stock ideas are identified by two primary methods:

  • Continuous review, monitoring and analysis of Texas-based and select U.S. corporations and their stocks.
  • Proprietary computer database.

Stocks eliminated from consideration:

  • Unclear accounting statements
  • Unsustainable or hard-to-predict growth rates
  • Unethical management
  • Poor competitive position

Key Stock Selection Criteria:

  • Low price / sustainable earnings.
  • Low price / sustainable cash flow.
  • Low price / adjusted book value.
  • Low price / five-year growth rate.
  • Stock price at lower end of one, three, five-year ranges.
  • Potential catalysts to unleash value (potential acquisition target, stock buyback, corporate restructuring).
  • Management strategies that are clearly committed to enhancing shareholder value in the near term.
  • Companies whose stock prices have declined sharply because of near-term problems, but which have a good long-term outlook.
  • Management that is buying – as opposed to selling – their company stock.

Sell criteria:

  • Price objectives are achieved
  • Fundamentals change
  • More attractive alternatives are found