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Stock selection is a multi-step process that involves both qualitative and quantitative research. As the first step in the stock selection process, we utilize the quantitative model to screen our universe of 7,500 publicly traded companies for stocks whose composite model scores signal the potential for outperformance. This score is based primarily on the statistical factors laid out below. We then apply qualitative and macro analysis to the initial screen selection to arrive at our best ideas.
Quantitative Research
Scholtz & Company has developed computerized quantitative formulas to explain the three main factors (earnings expectations, relative valuation, and investor sentiment) that drive a company’s price performance. Using 15 years of monthly data on approximately 2,500 equities, our backtesting model has helped us identify certain characteristics that lead to consistent outperformance. In the future, we expect computer models to have an even greater presence in stock selection and, as such, we consider this one of the most important tools undergoing constant improvement.
Our quantitative models help perform much of our analysis during an initial screen. This allows us to narrow down the stock market to a more select group of stocks that will potentially perform well. Please click here for a more in-depth discussion about our use of quantitative models and how this will help achieve superior investment performance.
Fundamental Research
After a stock is singled out from the stock universe, Scholtz & Company collects fundamental information to determine whether a stock would make a profitable contribution to our clients’ portfolios. Scholtz & Company has developed many sources of timely information on company, industry, economic and technical analysis. Diversification in our sources of information allows us to form a well-balanced opinion of an individual stock. For this reason, Scholtz & Company employs such databases as Zacks, Compustat, FirstCall, Market Profile Theorems and ValueLine, as well as relies on extensive data from Bloomberg.
Combined with statistical records from independent sources, we also speak daily to institutional equity brokers and analysts from respected brokerage firms regarding their latest ideas. These brokers also act as excellent networking sources because they inform Scholtz & Company of high profile meetings and industry seminars. The seminars give us the opportunity to hear senior management reflect on their company’s performance and future plans. Perhaps more importantly, these seminars allow us to judge, first hand, the quality of senior management and their ability to implement their plans. At times when the executives of a company are interested in visiting New York City, we invite them to Scholtz & Company for a more personalized meeting. Our firm typically hosts about 40 of these personalized meetings a year.
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