Process
The investment process begins by defining the investable universe of approximately 250 companies from a starting universe of about 2,000 companies. We utilize a broad combination of tools including quantitative analysis, focused fundamental research, and experience to do so. The quantitative screening process utilizes a proprietary multi-factor model that identifies companies over $1 billion in market capitalization, which have the following characteristics:
- Strong relative earnings stability and predictability across various economic cycles
- Sustainable, reasonable earnings growth over the short, intermediate and long time horizons
- Shareholder focus with respect to dividend growth, payout ratio, and net stock repurchases
- High quality balance sheets with low debt to capital and a high S&P rating
- Above average profitability with low capital intensiveness, large recurring revenue streams, strong ROE, and high free cash flow
- Lower relative beta
The quantitative process is augmented by layers of experience, qualitative judgment and importantly, common sense, to arrive at the final list of eligible companies for consideration. The group of roughly 250 securities, which emerge from the aforementioned screening process, is what we call our "Advantaged Universe" or the "Coho 250".
It is at this point where we become relative value investors. We apply a quantitative, dividend discount model with realistic, normalized, historic based inputs to each of these companies. This arrays the universe in order of attractiveness in terms of expected return. This combined with our own experience and judgment effectively culls the universe further. Much greater research effort is applied following this stage by focusing on management contacts, detailed financial analysis, conferences, qualitative analysis and more.
Buy Discipline
A stock is chosen for the portfolio when it meets our earnings, dividend, and cash flow growth and stability criteria, we have established comfort with the long term qualitative aspects of the investment, and we have talked/met with relevant management, competitors, customers and suppliers, and have completed our position paper. Using our Dividend Discount Model, the company must show at least 600 basis points of annualized expected excess return over the risk-free alternative (5-10 year Treasury).Position Paper
The position paper is completed to objectively identify and monitor major operating and financial metrics that we expect the company to maintain or achieve at specific points in time:
| Operating Metrics | Financial Metrics |
| New Product Introduction | Earnings Growth and Quality |
| Organic Revenue Growth | Balance Sheet Integrity |
| Market Share Gains | Share Reduction |
| End Market Expansion | Cash Flow Generation |
| Elimination of Non-Core Business | Margin Targets and Trends |
| Capital Intensiveness | Dividend Payout Ratio and Policy |
Sell Discipline
A stock is eliminated when the expected excess returns falls to 200 basis points or less vs. the risk-free alternative (5-10 year Treasury), position paper metrics are violated, or a new idea displaces the current holding.
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