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Process Cycle
Gracor Investors

The Never Ending CycleAt the end of the day, we are human and thus subject to human biases and emotions.  Value managers are not trying to be smarter, they are striving to be less irrational at the moment of truth.  Writing things down and dedicating ourselves to a formal process helps us move towards that less irrational goal.

Triage (what most managers refer to as "screening")
Finding the unique situation in a timely manner so that finite resources can be deployed effectively.

  • There are many methods, the most effective of which are proprietary.

Analysis (i.e., number crunching, journeyman effort)
The first steps in determining value are collecting, synthesizing, and summarizing historical financial data.  In today’s world, the bulk of analysis is in downloading data from reliable sources.  The primary talent that must be applied here is a tested knowledge of the accounting theory model.

Valuation (i.e., senior-level decision making)
The second part of determining value is where perspective based on knowledge and experience are brought to bear on deciding the degree to which the past performance of the business helps to understand its future value.  At this point, skepticism adds more than optimism!

Portfolio Construction – Judgment (i.e., senior-level effort)
The most important decisions are whether the margin of safety is significant and how it fits within an aggregate portfolio perspective.  If we are buying something, what are we selling?  If something has had an excessive run and we want to sell, what will we buy?  Cash is not a strategic option.

Portfolio Construction – Process – (i.e., journeyman effort)
Computer systems probe client accounts, investment guidelines are reviewed, aggregate purchase orders are executed to reduce costs, computer systems distribute shares to accounts, and settlement is reviewed.  Portfolios are constantly monitored for balance.

Monitoring (i.e., updating, journeyman effort)
Business fundamentals are monitored on a stock-by-stock basis for change and to track actual versus expected results.  At the very least, this should be done annually, and more frequently as the price moves further from the central value of the business.