Sabino Investment Management, LLC has an approach to investment analysis which is primarily fundamental in nature and value-oriented.
We review the cyclically adjusted price earnings ratios (commonly known as CAPE, Shiller P/E, or P/E 10) of the United States and other countries. The CAPE ratio is defined as the price divided by the average of ten years of earnings, adjusted for inflation.
We have a preference for funds and/or securities that reflect our value approach. Thus we prefer equity funds that hold common stocks that sell at relatively low ratios of price/earnings, price/free cash flow, and price/tangible book value.
We review cyclical factors that may affect market valuations, the US and global economy and/or specific industries. On the basis of our macroeconomic overview and relative valuations, we may develop a preference for certain countries, industries, and types of securities.
Although we have a preference for the use of mutual funds, closed-end funds, and exchange-traded funds, we may occasionally purchase individual equity securities to achieve a particular objective that is difficult to achieve with funds. If we purchase individual common stocks, we will examine valuation criteria such as price/earnings, price/free cash flow, and price/tangible book value. Our method of analysis for individual equity securities is not entirely quantitative in nature. Subjective factors are considered such as financial strength, reliability of the financial statements, nature of the industry and the company’s operations, abilities and goals of the management team, and other factors.
We may buy closed-end funds. We seek closed-end funds that have a portfolio of securities that we expect to appreciate in value, low operating expenses, and which sell at a discount to net asset value. Some closed-end funds utilize leverage and this will influence our decision to buy or sell the fund, depending upon our evaluation of potential appreciation and potential risk. We generally sell closed-end funds if the discount to net asset value has declined substantially since purchase.
We may buy mutual funds or exchange-traded funds (ETFs) that own fixed income securities. We may utilize such funds in order to have access to a more broadly diversified portfolio of fixed income securities and to improve liquidity.
Commodity-related ETFs may be purchased that buy and store physical precious metals. We may buy commodity-related ETFs because our analysis indicates that the supply and demand characteristics for such a commodity are favorable for ownership.
When we research mutual funds, closed-end funds, and exchange-traded funds, we review the types of securities held in the fund. We also have a strong preference for funds that have low expense ratios.
We generally buy debt that has an investment grade credit rating. However, funds may include debt securities and individual bonds may be purchased that are below investment grade or not rated if the potential return appears to provide sufficient reason to assume more credit risk.