Wedgewood Purchase Criteria

Our purchase criteria can be broken down into three categories: Opportunity, Consistency and Numbers.

Opportunity is based on a long-term approach to portfolio management. Short-term volatility and price fluctuation can create temporary price-to-intrinsic value discrepancies. Our database is set up to identify any such discrepancy and alert us to possible opportunities. If this opportunity meets our other criteria, it becomes a candidate for inclusion in our portfolio.

The Consistency in our criteria refers to a company’s management, guidance and long-term approach.  A solid management team that has been in place throughout different cycles in the economy is key to a company’s long-term viability. If a company is consistent with their management and approach to their business, share prices will reflect that consistency.    

The Numbers we watch are essentially the financial margins and ratios. Metrics like return on equity, operating margin, price to earnings ratio are part of our screening process, as well as things like cash flow and dividend growth. Low valuation relative to solid financial metrics makes a company a candidate for our portfolio.

 

Wedgewood Sell Criteria

Our sell discipline reflects the same categories as our purchase criteria.

Excessive valuation will trigger the sale of a portfolio holding. Whereas short-term volatility can create buying opportunities, it can also create the opportunity to take profits. 

Changes in management or a change in a company’s approach can also trigger the sale of a portfolio holding.  This won’t automatically trigger a sale, however very close scrutiny will be placed on this holding.

Deteriorating fundamentals will trigger a sale of a portfolio holding. If, in a review of a company’s quarterly financial statements, the financial metrics show deterioration, we will place the company under very close scrutiny. One quarter of deteriorating metrics may not warrant a sale, however if it continues or there are other sell criteria met, we will sell the holding.

We view equity selections with a long-term investment horizon of three to five years.  Within that time frame, however, price targets of six to eighteen months may be used.