We believe that many investors have an imperfect understanding of where alpha comes from.
Most think in terms of picking winners
when we believe their goal should be to avoid losers.
A loser is a company that cannot deliver the revenue growth indicated by its stock price.
Important Disclosure
The snapshot is being provided for illustrative purposes only and should not be construed as providing investment advice or as a recommendation to buy or sell any particular security. This snapshot is taken at a particular point in time and any analysis or information contained in it is outdated and should not be relied upon. Past performance is not an indication or a guarantee of future results. For full disclosure click here.
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A company has a range of potential revenue growth possibilities.
To determine this range, we take the company's revenue growth from the past 12 quarters and conduct 10,000 statistical simulations.
This process generates a range of revenue growth possibilities from most to least likely.
We believe a company’s stock price indicates revenue growth in the future.
We use the stock price together with widely accepted valuation methodologies to calculate this indicated revenue growth.
We believe a losing stock is one where the company is unable to deliver revenue growth indicated by its stock price.
To Identify a losing stock, we calculate the probability that the indicated revenue growth is within the range of revenue growth possibilities.
There is a probability that the company will fail to deliver the growth implied by it’s stock price.
In our process a lower h-factor is better.
The h-factor is the probability the company will fail to deliver the growth indicated by its stock price.
The risk is caused by humans impounding vague and ambiguous information into stock prices in a systematically incorrect way.
high h-factor
low h-factor
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