By the end of July, 2010, Mr. Market was once again being accommodative and I added to my position at approximately $36 per share. Although I was not able to buy at a perfect bottom, I was quite happy with my $40.50 average cost basis because thanks to all my hard work, I was confident that I had a position in this blue-chip that represented a discount to its fair valuation which I calculated at somewhere between $47-$48 per share. After all, my goal was to become a long-term shareholder in this business that I had long admired, but best of all at a valuation that my research suggested simultaneously provided both a margin of safety and an enhanced long-term opportunity.
Continuous Monitoring and Due Diligence
Moreover, in addition to reviewing all the company’s historical fundamental and financial data, I also routinely run several forecast calculations. I do this both prior to making my initial decision as well as continuously revisiting forecasts to stay current. The following Estimated Earnings and Return Calculator examples represent the various scenarios that I like to run, consensus, high growth and low growth. Note that these are based on current data whereas the estimates I base my initial decisions on in 2010 may have been different. My point being, due diligence is an ongoing process of a continuous monitoring of my decisions.
Thesis For Growth
At this point, I believe it is critically important to point out that the primary purpose of my due diligence and comprehensive research process is to develop a thesis for growth. I clearly understand that I cannot buy the past and that I am required to invest in the future. However, although I believe there is a great deal to learn from the past, my true objective is to determine whether or not the company continues to possess the quality characteristics that enabled it to produce excellent historical results into the future. Therefore, as part of my process I will create a thesis for growth based on the information and analysis that I have conducted.
Summary and Conclusions
There simply is no substitute for conducting comprehensive research and analysis before investing in and/or holding any stock. With this article I merely scratched the surface regarding how I personally approach researching a company. In essence, it is but the outline of the rigorous process I go through. The hard part, beyond reviewing the data points as presented in this article, is the actual reading of all the news, articles and additional research reports.
But perhaps most importantly, and to repeat, it is a continuous an ongoing process that I believe is critical to long-term success. My hope is that readers of this introduction to due diligence and comprehensive research might have a deeper understanding of what due diligence entails. At the end of the day, it all comes down to understanding and knowing the businesses that you are a shareholder of. Knowledge truly is power.
Disclosure: Long MDT at the time of writing.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.
