Thorough, Comprehensive Methodology
Based on fundamental metrics such as price/earnings, price/book and price/cash flow, Scharf Investments’ Multi-factor Analytical Performance (MAP) screen identifies securities that we believe have 30–40% appreciation potential over the next 12–24 months. 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 MAP-screened stocks qualify for further review. Our analysts work to determine whether any issues that may affect future valuation 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.
Risk management is integral to our approach. We build and monitor upside potential/downside risk ratios for each stock, and work to provide diversification by limiting exposure to individual stocks and industries. We believe the 30–40% hurdle rate provides an appropriate margin of safety. Only 25-35 companies with the best combination of quantitative and qualitative characteristics are placed in client portfolios.