Superior research is our overriding corporate focus. While typical Wall Street firms train their advisors into product-pushing sales professionals, we are passionate about training financial researchers and business consultants as we develop a global network of Zenway Certified Research AnalystsTM focused at conducting corporate investigations, dissecting accounting footnotes, identifying optimized strategic solutions, and doing complex business valuations.
Long-term Value Investing:
We take, and urge our clients to take, a long-term value-oriented approach to investing. We believe successful wealth accumulation requires the discipline to save, the courage to invest during the bad times, and the patience to sit through the painful yet inevitable market corrections. Investments in clients' accounts are generally selected with a minimum three to five year time frame in mind, and all clients are encouraged whenever possible to adopt a minimum of a five year investment horizon for investment funds managed by us.
Downside Risk Management:
Our philosophy is to help our clients to build wealth with peace of mind. We accomplish that by vigorously analyzing the downside rick of each investment. Our first goal is to preserve capital on an individual investment-by-investment basis by focusing on a company's net asset value and sustainable earnings power while trying to buy its long-term growth prospects for free. We strive to put together a portfolio of individual investments that will (1) preserve capital if we are wrong, and (2) achieve a good return if we are something other than wrong. And we attempt to reduce the risk-factor-correlations between the different investments in the portfolio. We select stocks, bonds, mutual fund managers, etc, all based on this general philosophy of ours. We focus on limiting the downside risk defined as the risk of permanent loss of capital.
Areas of Operation:
We generally select investments within, but not limited to, three areas: (1) Good growth business at bargain prices. (2) Special situations and risk arbitrage investments that are event-driven. (3) Asset plays, a diversified baskets of poor businesses at dirt cheap prices, often below liquidation value.
Good and Cheap:
Our main strategy is to search for Growth-at-a-Bargain-Price. Buying good businesses at cheap prices is also known as "Magic Formula Investing" as described by Joel Greenblatt with an impressive back-tested record. We developed our proprietary Zenway Version of Magic Formula Investing. We try to find the stars or leaders of profitable industries or sectors. Study their operations and finances in exhaustive details. When those stocks are selling at a price below its worth because of problems of temporary nature, buy them in a large scale. In time, the market will re-recognize their quality and the price will rise. This philosophy raises two important questions. 1. How do we identify a real star? 2. Why do star companies sell at prices well below their value?
How Do We Identify a Good Business?
At Zenway.com, we stick to the proven methods developed and tested by proven superinvestors. And in terms of proven investment methods, nothing is more so than the analytical methods introduced in the 1934 classic, Security Analysis, widely recognized as the Bible of Wall Street. Benjamin Graham, the father of security analysis, introduced the idea that stocks should be viewed as small parts of a business that's for sale. He developed a system for identifying the value of a business based on measurable data. This system was later modified and further developed by Warren Buffett, the greatest investor in the world. Our Zenway investment system is based on the Old Testament written by Benjamin Graham and the New Testament written by Warren Buffett, supplemented by what we learned from our own experience and from superinvestors like Peter Lynch, Joel Greenblatt, and John Templeton, etc.
Why Do Wonderful Businesses Sell Below Their Intrinsic Value?
The markets are not efficient or rational. In fact, they're emotional or manic-depressive. People (including professional investors) buy on the basis of fad, hope and fear. When great companies lose emotional appeal, their price fall--often well below that they're really worth. We seek out these "undervalued" stars. The gap between price and value gives us a margin of safety, which protects our capital and limits our downside risk. We focus on fallen stars of the stock market. We dissect a company's accounting data in great detail to make sure that those fallen stars are "real" stars with great economics and future profitability.