ValuFocus Investing: A Cash-Loving Contrarian Way to Invest in Stocks

Chapter 27

Another Tour through Our LCRT Model

Okay, here is a chapter that digs even deeper into the LCRT model, getting fairly technical at times to answer likely academic questions. It covers much of the same ground we already incorporated into the book, but is much more detailed. You will find some similar content, but there is more to be learned by sticking with this description of the model in building your knowledge. You could argue that the entire book is explained in more technical terms in this chapter. We encourage you to read on.

The LCRT framework incorporates the five key components that enable investors to determine the intrinsic value of a business enterprise.

1. The company's historical economic performance, measured and reported in financial results.

2. Description, progress, and some quantification of corporate strategies, reflected in analysts' and your forecasts of future economic performance.

3. Similarly, some good quantification of intangible drivers of value—the quality of management to sustain competitive advantage against their competitors (beat the competitive fade).

4. Macro factors driving the world, country, economy, industry, and company (taxes, monetary policy, government expenditures, protection of property rights, etc.).

5. Collective investor sentiment and behavior translated into market behavior and momentum. Market participants are not perfectly rational human beings.

Clearly, we aren't neglecting to factor market behavior into the equation. ...