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The Core Effort in the St. James investment process is to determine a realistic approximation of fair value for a company's stock and if fundamentally attractive, to purchase the stock at a substantial discount to fair value.
Our current focus is on large capitalization stocks.
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| Stage 1
Qualification
- We begin with the data from the Value Line Index (an index of 1700 companies from the
NYSE, AMEX, and Nasdaq).
- Our first task is to eliminate companies with poor balance sheets.
- As we gravitate toward companies with near-term operating challenges offering long-term
value, financial fortitude is key.
- We also eliminate stocks which are new to the market as it is difficult to ascertain fair value.
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Stage 2
Determination of Intrinsic Value
- Our valuation process is based upon the value-oriented securities
analysis pioneered by Graham and Dodd.
- We require the market value of a security to be at least 40% below
intrinsic value to advance to stage 3.
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Stage 3
Fundamental Qualitative Research
- We examine our statistically undervalued
opportunities to understand why a particular
company is inexpensive, and if it is likely
to move toward intrinsic value.
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Stage 4
Portfolio Construction
- The Fund's portfolio is
constructed employing
the 20 to 30 most
attractive stocks.
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Central to our philosophy is a strict sell discipline.
- The price reaches our appraisal and no margin of safety remains.
- We can improve our risk/return profile substantially. For example, we can replace a business selling at 90% of its worth with an equally attractive company trading at 50% of its value.
- The future earnings power of the company becomes severely impaired by competitive threats, balance sheet deterioration, or poor capital allocation.
- We no longer believe management can build shareholder value and efforts to find new corporate leadership would be unsuccessful or too costly.
Learn more about the Castle Focus Fund |
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