Investment Process

We screen companies proposed for investment using fundamental and quantitative analysis. We evaluate them according to their growth, profitability and value characteristics based on measures including revenues, earnings, cash flow, dividend payout and return on equity. These are standard yardsticks used to measure stocks.

We look carefully at a company’s business, its history and its industry in an effort to assess the company’s prospects for growth.  Having identified those companies that we believe offer the strongest prospects for future growth, we typically construct stock portfolios holding stocks in varied industries. Although we cannot eliminate the risk of stock ownership, we believe that diversification across multiple industries is important to reduce risk.

Buy Discipline:

  • Peninsula Asset Management’s buy discipline for individual equities is primarily bottom-up, fundamental, Growth at a Reasonable Price. However, we do consider value investments when favorable opportunities present themselves.
  • Equity databases are filtered using proprietary computer screening methodologies to identify the most attractive investment opportunities. The focus of this part of the process is on earnings, cash flow, dividend trends, and valuation.
  • In-depth fundamental security analysis is then performed on the computer-generated "short list" of attractive investment opportunities. We concentrate on issues of earnings and cash flow predictability and sustainability as well as industry position, capital structure, business drivers and valuation metrics.
  • Target securities that are approved by the Investment Policy Committee are then added to individual client portfolios on a case-by-case basis.
  • Risk management and control is maintained through sector and sub-sector diversification, active monitoring of risk exposures and strict adherence to client-specific investment policy guidelines for objectives and constraints.

Sell Discipline:

  • We recognize that all stocks, including those of high-quality companies, tend to go through cycles that include periods of relative weakness. These periods of weakness may often be viewed as buying opportunities rather than selling triggers.
  • There are four cases where we may sell a stock in client portfolios:
    • Intrinsic Value Attained. The price target has been reached and we cannot make a case for further multiple expansion, raising earnings estimates, or additional investment catalysts.
    • Opportunity Cost. At a specific point in time, another security looks more attractive on a risk/reward basis. Thus, our clients would incur a potential opportunity cost if we failed to make the switch.
    • Deterioration in Fundamentals or the thesis clearly not coming to fruition. Visible degradation in company or industry-wide fundamentals. For example, we would sell if sales growth unexpectedly and materially slowed, the sales mix deteriorated, pricing power was adversely impacted, anticipated product introductions were delayed, bellwether competitors or supplier fundamentals were hinting at a degrading situation in the future for our target company, etc. Additionally, if the rationale underpinning our investment thesis no longer seems reasonable, then we sell.
    • Stock Price rolling over. Price performance is degrading relative to peer group comparables and/or the industry relative strength rolls over compared to the broader benchmark. When this occurs, we then go back and do further investigation (primarily fundamental analysis, rechecking news and information in the public domain, etc.). If the adverse price trend continues, we may sell.

Bringing it all together:

  • Implementation of the firm’s buy and sell disciplines (use of discounted cash flow models, valuation models, intrinsic value price targets etc.) ensures that we have actively-monitored portfolios to offer our clients. New ideas are added while we selectively prune old ideas that haven’t worked.
  • Peninsula Asset Management actively reviews and rebalances individual client portfolios as necessary.
  • Client contact and subsequent adjustments based upon changes in individual client circumstances completes the investment process feedback loop.