DIY Investing

The DIY investor has a bewildering range of styles to choose from, ranging from day trading to buy and
forget. He or she has a decided advantage over the professional money manager. The private investor
has flexibility whereas money managers are generally restricted to a particular style-box. The style-box,
as far as I can tell, is no more than a marketing gimmick. Money managers have the additional pressure
of meeting quarterly expectations.

The successful private investor chooses a strategy that works for them. Some folks like the action of
momentum investing and others are much more risk averse and stick with large cap, dividend paying
names. The market is big enough for everyone.

The approach that works well with us focuses on quantitative measures. We are not too interested in
the “story” behind a name or management’s explanations or expectations. We rather let the numbers
do the talking.

Our approach emphasizes valuation, cash flow generation, profitability and price momentum. Valuation
and cash flow generation appear to be the most important drivers of excess returns.

One of our favorite valuation ratios is enterprise value to EBITDA. In the long run, no company succeeds
without strong cash flow generation. The measure we look at is cash return on invested capital. There
are several measures of profitability. Many investors are attracted to companies reporting high return
on equity. The potential for excess returns is diminished if the market does not recognize the
opportunity offered by a particular company. By combining low valuation as measured by EV/EBITDA,
successful execution by the subject company (ROE and CFROI), and price momentum, we have the
opportunity to generate excellent returns.

The companies listed here satisfy our criteria and are worth a close look.

01/07/1
    1        
EV/EBITD ROE_12 52W Price
ticker company Price CFROI A m Range %
ALK Alaska Air Group, Inc. 62.72 12.13 6.53 22.30 98.78
AGP AMERIGROUP Corporation 46.83 15.84 4.29 22.40 98.74
ASMI ASM International N.V. (USA) 34.45 19.21 6.85 25.30 86.63
CBPO China Biologic Products Inc 16.06 25.45 5.40 62.00 85.60
CLW Clearwater Paper Corp 81.20 23.38 7.06 21.60 92.77
CLD Cloud Peak Energy Inc. 22.46 16.54 6.12 78.30 87.00
SOLR GT Solar International, Inc. 10.50 17.45 6.91 64.80 97.22
IPXL Impax Laboratories, Inc. 20.68 44.31 2.25 110.50 88.74
KS KapStone Paper and Packaging C 16.10 22.89 6.63 21.00 96.72
NSR Neustar, Inc 26.99 18.23 7.42 20.40 97.28
PZZA Papa John's Int'l, Inc. 28.14 14.38 7.31 27.50 90.45
SNDK SanDisk Corporation 52.37 19.47 7.64 25.90 96.35
TEO Telecom Argentina S.A. (ADR) 25.65 26.23 6.95 30.70 87.86
TSP Telecomunicacoes de Sao Paulo 24.27 15.68 4.09 24.50 83.27
TER Teradyne, Inc. 13.70 27.76 5.41 40.00 86.79
USMO USA Mobility, Inc. 18.33 42.53 3.12 25.20 90.12
WTI W&T Offshore, Inc. 18.04 27.61 4.69 39.20 83.46
Disclosure: Author has long positions AGP, NSR, SNDK and TEO.