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Investment Process
Insight uses a disciplined, three-step process to evaluate the
investable domestic universe of actively traded public companies.
The process includes a proprietary quantitative analysis, rigorous
fundamental analysis, and a stock price performance analysis. |
Step One: Quantitative Analysis
The first step of the investment process identifies and ranks
companies based upon their stock prices’ relative performance
versus the market. Additionally, in order to mitigate relative
investment risk we analyze the return series risk profiles.
Our quantitative analysis is conducted across several time periods,
and the universe of stocks is regressed against broad market
indexes. We rank the universe of stocks based upon the ratio
of alpha to standard deviation, which creates a list of stocks
with the strongest history of outperforming the market while
taking into account low historical variance relative to the
benchmark index.
Quantitative analysis helps identify potential stocks for further
research and is not relied upon exclusively for stock selection.
Our quantitative process includes a relative strength (RS) score
for each stock, which further narrows the number of companies
that progress to the next step of our investment process.
Each Portfolio Manager prepares a weekly quantitative analysis
report. However, Portfolio Managers can run specialized reports
whenever necessary. For each strategy, we review the top-ranked
500 companies appearing on our quantitative reports. Typically,
7-10 new companies warrant detailed fundamental analysis. |
Step Two: Fundamental Analysis
Approximately two-thirds of Insight’s investment process
relies upon our analysis of a stock’s fundamentals. Our
analysis seeks out companies with strong, sustainable growth
in sales and earnings. Specifically, our analysts look for highly
defensible competitive advantages, rapidly growing markets,
and superior, value maximizing management.
Financial statements are studied to examine how successful the
company has been in reinvesting its profits (ROE), debt leverage,
margin improvement, cash generation, balance sheet strength,
and overall quality of earnings and assets. We pay particular
attention to a company’s market positioning, its reputation,
the demand outlook for its products or services, the expected
growth in the company’s addressable market, and competitive
threats. We gather this information by analyzing company documents
and SEC filings, meeting or interviewing company management,
and contacting customers, suppliers, and industry analysts.
Wall Street research is analyzed in terms of potential consensus
earnings changes that could impact a stock’s price. The
Investment Committee closely reviews the analysis produced in
Steps One and Two to determine the suitability of adding a stock
to the product buy list. Particular emphasis is given to earnings
growth and the sustainability of earnings growth. |
Step Three: Price Performance Analysis
Before a stock is selected for purchase from the product buy
list, the Portfolio Manager analyzes the relative strength (RS)
of each stock to ensure that those stocks with favorable quantitative
characteristics also have delivered high absolute rates of return.
We calculate this RS number by ranking all stocks in the universe
by performance over several time periods, with greater weight
placed on the most recent data covering the time period in question.
Before a stock is purchased, its trading history is reviewed
in detail.
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