10-POINT RATING SYSTEM We identify 'wealth creators' and unattractive 'wealth destroyers' based on a "10-Point Company Rating System". The rating system is driven by the following criteria:
Wealth creator - Does the company generate a return above its cost of capital?
Earnings predictability - Does the sector have predictable patterns of demand, costs and earnings?
Relative value - Is the company good value relative to peers in terms of earnings and assets?
Management - Is the management team credible as capital allocators?
Liquidity - Can we easily trade in and out of a position?
Competitive positioning - Does the company have a sustainable competitive advantage over its peers?
Intrinsic value - Is the company under-valued or over-valued according to discounted cash flow models or sum of the parts valuations?
Catalysts - Is there a possible event that will affect shareholder value over a three-month horizon?
Hedging method - Can a long or short position be hedged against a correlated and well-researched peer?
Risk/reward ratio - What is the potential upside and downside?
