Success is a matter of discipline.

How We Invest

At Scharf Investments, we focus on high probability, long-term process rather than random, short-term outcomes.  We stick with our strategy even when it is out of favor. We do not expect low valuation strategies to outperform during every time period — they will not. We do expect low valuation strategies to outperform the benchmark over the span of a market cycle.

MAP Screen

We use our proprietary, Multi-factor Analytical Performance (MAP) screen to identify issues that we believe have 30–40% appreciation potential over the next 12–24 months based on fundamental metrics such as price/earnings, price/book and price/cash flow. The MAP screen uses data as far back as 1973 and seeks stocks with ratios that are:

  • Low within their industry group
  • Lower than usual relative to the rest of the market
  • At the low end of their absolute historical range
  • Low relative to all other stocks with similar prospects and financial characteristics

Only a fraction of the stocks screened meet our baseline MAP criteria and qualify for further review. We then apply rigorous fundamental analysis to qualitatively validate or invalidate the appreciation potential. Compelling valuations often coincide with particular business issues. Our task is to determine whether the issues are real or exaggerated, temporary or permanent, and whether the current valuation is justified or unjustified. We typically rule out companies facing long-term, negative secular trends.

Stocks judged to have the best combination of quantitative and qualitative characteristics are placed in client portfolios. We believe the 30–40% hurdle rate provides an appropriate margin of safety in the event of adverse fundamental developments.