Security Selection is an ongoing process which focuses on both quantitative and qualitative factors that impact a company and it’s market valuation over time. First Nebraska Trust Company utilizes a bottom-up approach that focuses on the company’s fundamentals and assesses the risks versus opportunities over the investment horizon.
Our selection criteria focus on purchasing quality companies with understandable business models. This provides us with a high confidence level in becoming owners of the business. Companies which would be favored in our selection process would have most, if not all, of the following characteristics:
- Strong, self-financing balance sheets with the ability to generate significant amounts of excess cash flow.
- High and sustainable returns on equity (ROE) or returns on invested capital (ROIC) with high reinvestment rates
- Strong management team with the ability to evolve the business to changing industry dynamics
- Sustainable growth with the ability to influence their own destiny through relative pricing freedom due to a dominant market position or a powerful franchise
- Effective use of technology in the business to improve quality of products and services and/or improve productivity
Investment ideas are generated from numerous sources. Our Investment Team spends a considerable amount of time reading corporate annual reports, industry periodicals and financial news sources to identify businesses that stand to benefit from identifiable trends, both macro and micro, and that fit within our selection criteria. We also screen a number of databases for companies that meet our quality and valuation parameters.