Since its inception in 1980, Anderson Hoagland has focused on adding value to client equity portfolios. Our approach is based on the selection of individual stocks, which may be supplemented with exchange traded funds (ETFs) to achieve broader asset class diversification. We do not limit our selections to companies of a particular size, and we typically do not hold more than 20 to 30 individual issues at a time.

Our stock selection method is opportunistic.  Our experience indicates that stock markets are efficient in the long run, but pricing inefficiencies develop and persist over short and intermediate periods of time as swings in investor sentiment overshoot changes in real business conditions. 

We do not engage in market timing.  We believe an appropriate exposure to the equity markets should be determined through an asset allocation process reflecting a client’s financial circumstances and risk tolerance, not on an estimate of whether markets as a whole are over or under valued. 

Investor emotions frequently prevent an accurate assessment of a stock’s price.  We focus on investment fundamentals and identify opportunities when emotional excess occurs.

We believe the ability to sustain an allocation through market cycles is a key component of a successful long-term strategy.  Our stock selection is based on relative valuation, which means that we compare company valuations to the broader market rather than to an absolute standard.

Our style is contrarian in nature.  We prefer to establish positions when negative sentiment regarding a particular company or sector has driven prices to bargain levels. 

We analyze companies in which we believe the fundamentals of the business are underappreciated, so we invest across the “value” and “growth” spectrum and across a wide range of company sizes.

The primary analytical measurement we employ in valuing companies is cash flow return on capital: the aggregate cash a company generates compared to the total investment required to generate that cash.  To maximize return on invested capital is a company’s ultimate task, so this cash-on-cash return is one of the best ways to evaluate a company and its management. 

By focusing our analysis on the most critical economics of a company, we seek to avoid being swept along with investor sentiment.  In fact, our analytical approach gives us a unique tool for estimating how much emotion, positive or negative, is reflected in a company’s stock price and how its valuation compares to the broader market. 

Additional Details
We subscribe to a proprietary database, which tracks cash returns for over 5,000 U.S. companies, and which serves as a primary tool to screen new investment ideas.  A company becomes a candidate for analysis when we can project a 30% or greater annualized return based on the company achieving: 1) cash returns in line with its own historic performance and 2) an appropriate relative valuation. 

Our fundamental work improves our understanding of a company’s business and the reasons why it appears to be undervalued by the market.   Steps include analyzing financial statements; developing cash flow and earnings models; and contacting industry sources, analysts, and company management to discuss growth prospects, competition, and business strategy. 

We also study traditional valuation metrics such as price-to-earnings and enterprise value-to-EBITDA ratios to evaluate whether our targets are reasonable given a company’s valuation history.  After this process, if a company still shows the potential for 30% or greater annualized returns, it becomes a candidate for purchase and is added to portfolios in an amount dependent on how attractive it is relative to other portfolio companies.

Our portfolios of individual equities are typically concentrated in 20 to 30 stocks so that the value-added through fundamental analysis is not lost in excess diversification.  In addition, we have relatively long holding periods, resulting in historical annual portfolio turnover of approximately 30% to 50%.

We understand that the goal of investing is to add purchasing power to each client’s net worth over time.  Our long-term measurement of investment success, therefore, is the return of our portfolios, net of fees and expenses, relative to inflation as well as to relevant benchmark indices.