Our investing philosophy is based upon the principles of Benjamin Graham, author of Security Analysis and The Intelligent Investor and the father of modern security analysis. Graham’s idea was to calculate the intrinsic value of a firm – either its fair value to someone buying the entire business or the hidden value of the firm’s assets or the total present value of the firm’s cash flows. This process of determining a firm’s value is more closely related to evaluating the creditworthiness of the firm. This is for good reason. We are as concerned with the return of our capital as we are with the return on our capital.

  • We are “bottoms up” investors. We are more concerned with the value of individual companies.
  • We screen for stocks using strict criteria such as low price-to-book ratio, low price-to-sales ratio, positive free cash flow, low price-to-cash flow ratio, low debt levels and/or a small market capitalization.
  • We calculate the intrinsic value of the firms on our screened list. We analyze the balance sheet, income statement and, most importantly, cash flows of the firms.
  • After determining a firm’s intrinsic value, we buy only when there is what Benjamin Graham called a “margin of safety.” For Aerie Capital clients, we need at least a 35% discount to intrinsic value. For example, if we calculate a company is worth $10 per share, the maximum we would pay is $6.50 per share.
  • We are value investors, but we don’t shun growth. We love to buy stocks of companies that are growing. We just won’t give up our margin of safety to do so.
  • We maintain a strict sell discipline. We sell for one of two reasons – the stock approaches or exceeds our calculated intrinsic value or the reason behind our purchase changes.