Mr. Costigan: Davidson Trust Company was founded over 35 years ago with an objective of helping affluent families plan for, manage and protect their wealth. As time marched on, our firm was asked to help institutional clients as well. In conjunction with our advisory and administrative services, we manage just under $1 billion for families, foundations, businesses and governments through a combination of our proprietary equity, and fixed income strategies and open architecture capabilities.
From an equity standpoint, we focus primarily on two things. First, we try to identify what we call successful companies, which are businesses that are growing, market dominant, conservatively financed and run by smart, shareholder-friendly people. We segregate this opportunity set from the rest of market through a combination of quantitative and qualitative screens. Next our analysts value and present that subgroup to our entire investment team, with a goal of identifying businesses that have persistent growth and are trading below our estimate of their fair value. Those two processes, the quantitative/qualitative screening process and then the valuation discipline, is what allows us to build portfolios that we believe have below-average volatility, low turnover and above-average prospects for long-term appreciation.
TWST: Tell us about your successful company discipline - what it entails and the criteria that you look for in a successful company.
Mr. Costigan: Quan-titatively, we look for businesses that provide a minimum level of liquidity, high ROIC and below-average leverage compared to their peers. We also require a history of consistent sales and earnings growth. When we get into the qualitative part of our analysis, we look for competitive advantages that will allow a business to compete and win. A review of Porter's Five Forces Analysis is a good way to think about this part of our process. In addition to having a competitive advantage in their industry, we want management teams that are experienced and shareholder-friendly because the best business opportunity in the world is worthless if the people running the company aren't focused on the owners' best interest.
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