ACTIVE EQUITY INVESTMENT PROCESS

At Alpha Blue, LLC | Alpha Blue Capital our Active Long Equity Investment Process is a disciplined repeatable process that we have been practicing for over 30 years. It begins with and is framed by our Active Equity Investment Philosophy and integral “4-Levels” of Bottom-up Stock Selection, resulting in a distinctive approach that consistently has both favorable portfolio characteristics and a high probability for success with attractive Valuation, sound Fundamentals, Quality & positive business Momentum (V,F,Q,M). Relying on experienced & skilled judgement while seeking an analytical edge rather than emphasizing significant effort to gain an informational edge. Historically, our Value-Focused Investment Management has generated Alpha over the benchmarks’ results with strong risk adjusted returns.

Our strategies employ prudent and consistent equity risk taking through well diversified portfolios. Our overall Disciplined Risk Management is the key to compounding asset growth of capital invested in the strategies over the long term and preventing permanent loss of capital in down markets.

 

INVESTMENT PHILOSOPHY


 

“4-levels” of Bottom-up Stock Selection Discipline (V,F,Q,M)


Level 1 – Valuation:  Traditional Valuation Measures, Enterprise Value Valuation Measures, Peer & Market Comparisons, Intrinsic Valuation | Margin of Safety & Other Valuation Measures taking into account Growth & Profitability.

Level 2 – Fundamentals | Wide-Narrow Moat:  Strategy & Competitive Position, Profitability, Growth, Intangibles, Financial & Balance Sheet Strength, ESG and other Fundamental Analysis considerations to evaluate overall Quality | Assess long to short term prospects for sustained competitive advantage.

Level 3 – Business Momentum | Momentum & Catalysts: Business Improvement through increased revenue, earnings & other measures of improving operating performance while meeting or exceeding expectations. And/or positive stock specific Catalysts that may lead to sustained Price Momentum & outperformance versus the market. Consider potential Price Momentum Velocity probabilities along with % upside to Target Price.

Level 4 – Target Price & Weighting in Benchmark:  Determine Target Price: Base Case % Upside and also estimate: Best & Bear Case Targets.  Assess stock specific weight within the Benchmark and consider the position size degree of overweight or underweight active share based on given specific risks & conviction.

RISK ASSESSMENT & MANAGEMENT

Within the “4-Levels” – The following 6 key types of risk are inherently and/or directly assessed and taken under consideration as part of the ongoing Buy|Hold|Sell decision process as well as the position size within the portfolio:

  1. Business Risk – External/Operational Threats that may prevent a company from achieving its goals.
  2. Financial Risk – Not being able to meet financial obligations including credit risk and loss of profits.
  3. Valuation Risk – Uncertainty of the Value of an investment both in variability and magnitude.
  4. Earnings Risk – Uncertainty of Earnings expectations being met both in variability and magnitude.
  5. Liquidity Risk – How easily a security can be bought or sold in the market and converted to cash.
  6. Volatility Risk – Volatility of the price of a security as a result of a change in an investment/risk factor.

ACTIVE LONG EQUITY INVESTMENT PROCESS

Internal & External Investment Universe Screening on Value, Fundamentals, Quality, Momentum (V,F,Q,M) Factors & Other Criteria.

Fundamental Analysis & Investment Research (Internal & External).

Define Target Price | Intrinsic Value with Sell Discipline related to success in achieving Target Price or weakening or reversal of any of the “4-Levels” resulting in a Hold|Trim|Sell Decision.

Individual Stock Position Sizing & Portfolio Construction based on: % Upside to Target Price, Valuation, Fundamentals, Quality & Growth, Momentum, Risk Assessment, Conviction, Active Share and Liquidity resulting in ongoing Buy|Add|Hold|Trim|Sell Decisions.

Portfolio Monitoring & Management of Individual Securities and Maintaing Favorable Total Portfolio Characteristics.

Disciplined Risk Management through the “4-Levels” of Stock Selection, Assessment of Stock Specific Risks, Diversification Guidelines, Individual Stock Position Sizing and Sell Discipline.