By Tim Wood -
NEW YORK (ResourceInvestor.com) -- Frank Holmes, chairman, chief executive and chief investment officer of money management firm US Global Investors [GROW], has been on a hot streak, but isn’t afraid to share some of his success secrets with retail investors.
With some of America’s top performing mutual funds under the care of his firm, Holmes revealed to delegates at the European Gold Forum that he pursues a highly structured and analytically driven approach to investing.
It’s so structured that particular days of the week are devoted to specific issues.
Employees are focused on “Alpha” – US Global Investors’s multi-disciplinary investment model that combines eight “top-down” and “bottom-up” factors into a SWOT analysis. These are incorporated into stock screens and industry metrics that are assessed against the backdrop of cycles that provide timing clues to pin on the fundamentals.
Such a highly disciplined environment could drive many people crazy, but it is evidently yielding results given the performance of the US Global funds across several categories. It also enables more than gut check investment decisions if Holmes’s perpetual motion activity on his Blackberry is a gauge. He’s constantly firing off e-mails to his staff.
Holmes, a furniture connoisseur when he’s not trading stocks, is best known as an especially good resource investor, but he repeatedly stresses the need for diversification. “No one asset class is always on top.”
He had delegates guffawing at the stereotype of investors buffaloing into and out of stocks at exactly the wrong times.
Using a 60-date rate of change on key indices, US Global is able to predict quite accurately when money will flow in and flow out in unusual volumes. As soon as the rate of change exceeds one standard deviation on the upside, the affected fund will move to cash in anticipation of a derating. On the downside, the fund will move from cash to securities as more value becomes apparent.
From a fundamental perspective, Holmes says the surest guarantee that a stock is going to outperform is its ability to grow revenue, margins and cash flow. For mining stocks likely to rise in value, he looks for improving revenue and improving production profile (more units or lower costs) and more cash flow.
At all times he’s registering those details against discounted cash flow from individual operations which are summed with other assets to produce a net asset value. And then there is the life-cycle of mine development which is a reliable guide for timing peaks and valleys in the fortunes of individual stocks.
Those individual merits and demerits are overlaid by large macro-factors, such as a stock’s exposure to China or India, which are both driving global demand on an unprecedented scale.
Source: Resource Investor
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