How We Pick Stocks

How We Pick Stocks

In selecting stocks, we start by identifying those that we believe are selling below their intrinsic values. Our style is “all cap value,” meaning that we may select stocks of large, medium or small companies. Over the years our sweet spot has been small-cap and mid-cap value, a realm in which one can sometimes find opportunities not yet discovered by major brokerages or financial institutions.

Next, we look at the trading activity of a company’s executives, which must be reported to the Securities and Exchange Commission. Other things equal, we favor stocks that show insider buying and avoid those that show major insider selling. We believe that buying has greater predictive value than selling, and that trades by chief executive officers and chief financial officers are the most revealing.

Then we focus closely on a company’s balance sheet — its assets and liabilities. We believe that many investors focus myopically on earnings, especially recent earnings. But a strong balance sheet speaks volumes about a company’s soundness and ability to take advantage of opportunities that may arise.

Then comes the challenge that is the hardest and most subjective — examining a company’s management and strategy. Here we believe that John Dorfman’s decades of experience as a financial journalist come in handy, helping him read between the lines of corporate statements and sometimes discern the true state of affairs, which may differ from what management seeks to portray.

 

Portfolios Tailored to Each Client’s Needs and Goals

After identifying promising securities, we undertake to meld them into coherent, customized client portfolios with an industry and sector balance that is right for current market conditions. Most of our client portfolios contain 20 to 30 common stocks. The majority of the stocks are from U.S.-based companies, with a sprinkling of stocks from Asia, Australia, Europe or Latin America.

Become a Dorfman Value client and let us build a customized portfolio to meet your financial goals.

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