My investment thesis has changed as my knowledge of the stock market advanced. In the past I was willing to take on substantial risk for substantial reward without actually doing a thorough job of analyzing a company. At this point in time, my investment thesis revolves around undervalued stocks. I screen stocks on a valuation basis before anything else. The beginning of my research usually is very quantitative, screening through financial statements such as balance sheets to see if they’re too leveraged for my liking. If they are very leveraged, although sometimes necessary, I will decide if their debt levels are a risk to future earnings. I like to see a company with a strong balance sheet spitting out ample amounts of cash to reward shareholders through dividends and buybacks. When growth is funded by debt, interest payments will be a drag on their bottom line.

Next, after finding potential candidates that are undervalued, I will dig a bit deeper. 90% of the time, from my experience, the stock will be undervalued because of an over-reaction in the market. It may have just sold off 20% because of store closures or some other catalyst. At this point I will see if the sell-off was truly justified by the share price drop. Many times investors will over-react and create a solid buying opportunity.

Last but not least, I will check qualitative factors such as managements ability to drive future, sustainable growth. After I do decide to invest in the security(Usually after doing some sort of valuation process, DCF model or relative valuation) I will monitor the stock occasionally and make sure no substantial business changes have occurred. If it has a huge sell off and I am in a deep losing position but nothing has fundamentally changed with the company, I will resist emotion and stay in the stock. If my cash on hand allows it, I may increase my position because it is further discounted at this point. This would result in a dollar cost average lower than my initial investment.On the other hand, if there is reason to justify the share drop, I will potentially sell the losing position and use it to my advantage as a tax write-off.

My holding horizon is long term unless something within the core business substantially changes. This allows me as an investor to save money by avoiding short term capital gains taxes which would significantly deteriorate my profits.