OpVest Wealth Management focuses on deep value investing principles inspired by the likes of Warren Buffett, Benjamin Graham, Martin Whitman, Bruce Berkowitz, Wilbur Ross, Seth Klarman etc. We work with stocks, bonds, options, and all other securities in which we have a deep understanding of. When taking equity in a company OpVest views itself as a partial owner of the business. As investors we are perfectly comfortable taking a long term perspective and we attempt to align ourselves with managements that have their shareholders best interests at hand. We pay careful attention to measures such as return on invested capital, free cash flow generation, and leverage ratios in evaluating the quality of an investment opportunity.
At OpVest we ascertain what we believe to be a security’s “intrinsic value” and then we attempt to purchase it at a substantial discount thereby ensuring us of an adequate margin of safety. Typically we attempt to buy at a 50-60% discount to intrinsic value. We attempt to mitigate risk by focusing on how we can lose on an investment before we look at how much we can gain. We measure risks in absolutes as opposed to relatives so if the market is extremely pricey and if we can’t find good investment opportunities we would rather sit on cash then play a game that we do not understand any longer.
When evaluating investment opportunities we start our process on the balance sheet as opposed to the majority of Wall Street whose primary focus is on the income statement. The balance sheet tells the story of a company’s liquidity, in addition to filtering out the quality of both its assets and liabilities. Important questions must be answered in terms of the company’s capital structure and potentially its liquidation value. We evaluate companies inventories and owned real estate to determine an appropriate net asset value, that give us a better picture of what the business would be worth as an owner of it.
Next we will look at the statement of cash flows. It is here where we get the best gauge of the quality of earnings that the company is generating. Our belief is that it is imperative to follow the cash to see the true value of a company in that “earnings” on the income statement can be manipulated by a number of different factors, but companies that are generating strong free cash flows tend to have a higher quality earnings stream.
At the income statement we look for revenue and earnings trends. If the company is growing but the growth is not profitable growth then we take that into account, whereas if a company is shrinking but becoming a more profitable and viable operation in the process then we tend to be more attracted. It is important to ascertain a company’s tax situation, and accounting practices as it often paints a much clearer picture of both the company’s financial situation and management.
