Security selection at McCullough & Associates is conducted in-house and focuses on identifying companies that have specific characteristics. Our goal is to find the best companies in industries selling at attractive valuations and to hold them long term for maximum price appreciation. Following are the four key company characteristics we consider:
Strong Financial Position
We seek companies with strong balance sheets and positive cash flow trends. These companies are more likely to be able to meet capital needs and maintain dividend payments, especially when credit is tight or markets are volatile.
We look for experienced management teams with a proven track record of success. Companies should utilize conservative accounting principles and align the financial interests of management and shareholders.
We also want to see a commitment to controlling expenses and consistent capital allocation decisions. Management teams that have shareholder interests in mind reinvest profitably in the business and use free cash flow to pay down debt or return money to shareholders through dividends and share buybacks.
Sustainable Business Model
We seek to understand how a company makes money now and how it will carry that into the future. We look for quality products, good supplier relations, motivated employees, and an innovative culture in a company. We also take into account industry growth trends and the expected strength of competition in the near term.
“A good business is not always a good purchase, although it is a good place to look for one,” remarked Warren Buffett. We perform fundamental research to establish a target price for the company by focusing on the intrinsic value of the business and assessing the near-term risks to that value. Our objective in establishing a target price is to establish a “margin of safety” and reduce the risk to invested capital.
We also perform technical analysis, which involves analyzing price trends to identify key support and resistance levels. In addition, we analyze the supply and demand dynamics for particular securities. When selecting investments, the portfolio management team places great emphasis on companies it believes can offer the best long-term price appreciation.
The market is inefficient and frequently prices companies above or below their intrinsic value. We seek to profit from this inefficiency by doing our own analysis of the financial strengths, management, competitive positions, and assessments of future earnings potential of our companies. Successful investing is predicated on buying stocks at a discount to underlying value.
Our team provides our clients with the highest standard of financial and investment advice to create a roadmap for your financial portfolio based on your unique investment objectives, liquidity needs, tolerance of risk and time horizon whether you have one investment goal or an array of complex needs, we put our investment knowledge and experience to work for you.
Each portfolio is separately managed and constructed to follow strict investment standards within the client’s goals and guidelines. Also, as a fee based advisor our incentives are aligned with those of our client.