Stock Selection Methodology

The process of moving a stock from the "we’re interested" list to one of our funds is a rigorous one. The Weitz Way depends on our experienced, thoughtful, disciplined team of analysts to find opportunities, vet them and present them to the entire Investment Team before they’re even considered by a fund manager. Throughout the process, there’s an abundance of collaboration, with team members challenging assumptions, conclusions and one another.

Step 1: Spotting an investment opportunity

Great investment ideas can come from anywhere. That’s why our analysts are generalists with the freedom to pursue opportunities wherever instinct and curiosity lead them. Naturally, the members of our team have developed individual areas of expertise. The depth of understanding in each analyst’s “circles of competence” allows them to spot opportunities that others may miss. When something looks promising – either in an analyst’s area of interest or otherwise – the analyst determines if it’s a business we can understand that’s in control of its own destiny, generating excess cash, and managed by a team we can trust.

Step 2: Analyzing the company

Now we start to dig in deep.  The analyst reviews the company’s financial reports, evaluates its operating and investing track record, analyzes its competitive position, and assesses its management team. In short, we want to know what makes the company tick. While this detailed analysis often takes several weeks, we have been tracking many of these businesses for years or decades.

Step 3: Determining business value

Business valuation is our foundation. The analyst assigns an objective value to the company based on our view of what an informed buyer would pay to own the entire business. We start by forecasting a company’s free cash flows for the next several years. This forecast is a function of the excess cash that a business generates, as well as how wisely management re-invests that capital. Ultimately, the present value of all future free cash flows drives our business value estimate.

Step 4: Writing the company report

The sponsoring analyst writes up a company report for the Investment Team’s review. This report describes the company’s business and industry, outlines the investment thesis with an action recommendation, analyzes the sources and sustainability of competitive advantages and discusses material weaknesses or concerns. The report also includes an estimated valuation, along with the key drivers that we think will make or break the investment.

Step 5: Vetting the investment idea

The sponsoring analyst presents the report to the full Investment Team. With the principles of the Weitz Way behind it, the team asks tough questions, pokes holes in the thesis and debates the analyst’s logic. If the potential investment passes the vetting of the Investment Team, and the price is right, the fund manager has the opportunity to decide whether to invest.

Step 6: The fund managers

This is key. No matter how good the argument or what happens in the team meeting, a stock will not become part of our funds until the fund manager decides it will. While the research and vetting processes are collaborative, our stock selection is not done by committee. With years – sometimes decades – of experience behind them, our fund managers only admit the most objectively promising choices to the portfolio. Stocks that don’t make the cut are added to our growing watch list.