Stock Selection Process

Our analyst team of six investment professionals is dedicated solely to equity research and portfolio management. They provide important input to both the portfolio management and risk management processes implemented by Daniel Strickberger and Stephen Memishian.

We screen a database of over ten thousand companies to identify investment candidates. From the screening process we generate a "monitor" list of more than 500 companies, which is constantly updated through ongoing database work. Our investment team evaluates “monitor” list investment candidates that have both solid/improving fundamentals and attractive valuations.

We undertake a thorough security analysis of the company, its competitors and its industry before making the decision to invest. Companies whose business fundamentals and stock price valuation meet our criteria are either purchased or added to our “on-deck” list. The “on-deck” list is utilized as a source of immediately available new ideas to replace “owned list” positions which have become fully valued or whose business fundamentals are deteriorating.

Through our rigorous research process we generate proprietary growth rates, earnings estimates, and price-earnings ratio targets as a basis for making our investment decisions. However, we utilize "consensus" earnings estimates and growth rates, combined with historic price-earnings-ratio (P/E) data in our screening process and for our monitor list. We believe that the research and stock selection process must be fast, flexible and opportunistic, because the investment environment itself is characterized by rapid change and frequent surprise.

 

Valuation / Portfolio

DSM Capital Partners is a long-term oriented investor. Our valuation model is driven by our projected three-year earnings estimates and price-earnings ratio targets, with which we generate three-year-out price targets. We prefer to invest when a stock looks reasonably attractive even with a lower growth rate and price-earnings ratio target than we think likely. Generally, all of our clients will own the same stocks, although there may be some differences between a new client's portfolio and that of a longer-term taxable client. After a year, or perhaps a bit longer, the differences should be quite minimal.

 

Tax Considerations

As long-term oriented investors, we target long-term capital gains. However we will realize short-term gains if a holding meets or exceeds the price target created by our valuation system in a shorter than expected period of time. Alternatively, we intend to sell or "trim back" those holdings that report disappointing or "below consensus" results regardless of the holding period. The latter practice may result in short-term losses that can offset short-term gains.

Flexibility is important to our approach. We will make changes quickly and, using our on-deck list along with thorough security analysis, we intend to replace positions with a new investment as soon as is practicable.