“We won’t look at a company until we talk to management,” says Ralph Bassett when summing up the investment strategy he and his co-managers use at Aberdeen US. Small Cap Equity (GSXAX), an $817 million fund that Morningstar ranks in the top 1% of small-cap growth funds. Bassett’s philosophy, outlined in a recent Barron’s article, is built around the belief that owning the right companies is more important than diversification. With an 8.3% return last year (compared to a decline of 4.4% in the Russell 2000) and an 11.2% gain so far this year (versus 4.7% for the index), it […]
While many investors focus on earnings, Validea CEO John Reese says that some of Wall Street’s best strategists prefer to use free cash flow when analyzing a company.
In his latest column for Canada’s Globe and Mail, Validea CEO John Reese looks at companies with high free cash flow yields. “Cash: It’s the lifeblood of any business,” Reese writes. “That may seem obvious, but it’s something that can easily be forgotten — just look at what happened to overleveraged, overextended companies during the financial crisis in 2008. … Companies that have lots of cash freed up can also be attractive targets for investors. In fact, some of the world’s most successful investors focus on free cash flow — which, generally, is the amount of cash a firm generates once […]
Advisor Perspectives turns out another good interview, this time with Fairholme Fund manager Bruce Berkowitz. Berkowitz’s leadership has helped turn the Fairholme Fund into one of the most successful funds around. Berkowitz takes time to discuss his investment process. Specifically, he says “we look at a company’s free cash flow relative to its price. Ideally, we look for a free cash flow yield of 10% or better. Then we ask what management will do with that cash. If management has a record of investing wisely, that’s great. But we also worry about what can go wrong – what I referred […]