- Step 1: Generate Investment Ideas
- Step 2: Research Securities
- Step 3: Conduct Fundamental Analysis
- Step 4: Sell Discipline
GENERATE INVESTMENT IDEAS:
Initially Sparrow screens databases (Value Line, Zacks, and Reuters) for industries and companies that show consistent earnings power over multiple economic cycles.
Stocks are then scored using a proprietary matrix of various fundamental, quantitative, and technical factors. Some of these factors include:
- Above average earnings per share growth rates
- Above average return on equity
- Excess free cash flow
- Low debt to equity
- Shareholder friendly management
- High margin of safety
CONDUCT FUNDAMENTAL ANALYSIS:
We review the company's original source material such as quarterly and annual reports; participate in quarterly conference calls and web casts; read independent analyst reports from Value line, Zacks and Reuters; determine intrinsic value, margin of safety and best time to buy based on trading patterns.
SELL DISCIPLINE:We sell when the original reason we bought the company no longer exists or when extreme overvaluations occur on a case by case basis.
RESEARCH SERVICES USED
- Valueline, Reuters, Securities Research Company, and Zacks among others.
- Monthly company webcast conference calls.
- Street Research - Goldman Sachs and others.
- Federal Reserve Data.