The quality of a business is fundamentally important to an investor.
Over the long term businesses benefitting from favourable or improving industry structures, competitive position, management application and longer term economic trends have a propensity to generate higher returns on investment than companies that are not. A company’s relative ability to generate shareholder value forms the basis for our definition of Quality which we measure and rank through our Structural Attractiveness Assessment.
Patterns of mispricing materially influence investment returns.
Mispricing occurs when share prices diverge from the intrinsic value of a company. The share market routinely misprices stocks, in some cases by large amounts and over extended periods, creating ongoing opportunities and risks for investors. There is much empirical evidence in the field of Human Behavioural Bias (HBB) which supports our view that the dominant causes of mispricing are the errors of judgment which are systematically made by the investment community.
Whitefield seeks to classify stocks in terms of the scale of mispricing and how it is likely to develop in future through our Price-to-Value Cycle Assessment. This assessment characterises companies through combinations of Value, Quality, Revisions and Momentum, and assists us in capitalising on the opportunities and avoiding the risks that result from mispricing.