COOLIDGE's ANALYTICAL MARKERS

There are a number of key markers that we use in analyzing stocks and corporate bonds, divided into four principal categories: balance sheet, income statements, dividends, and qualitative considerations.

1. Balance sheet: Our most valuable screening device, balance sheets are a good indication of a company’s overall health. A company with a poor one rarely, if ever, can qualify as a suitable holding for a fiduciary. We particularly abhor heavy debt, which we view as a severe competitive handicap and management constraint, especially in a weak economic environment.
2. Income statement: An income statement offers a view of company trends over a period of time. It is critical to benchmark these against competitors. As long term investors, we take a long term view and value management’s vision rather than quarterly numbers alone.
3. Dividends: At the core of our discipline is the ability of a company to pay and consistently grow dividends. This is closely tied to our first requirement of low debt. Simply put, a company that carries a lot of debt is unable to offer dividends safely or consistently. A consistent dividend history is fundamental to the overall return of a stock: From January 1926 through March 2008 the annualized total return for the S&P 500 was 10.27% per year – and the dividend component of that return was 41%. Dividends raised year after year also help to counter the effects of inflation.
4. Qualitative considerations: Foremost among these is the integrity and capability of management. Integrity is intangible, but is evident from the handling of corporate assets, the treatment of employees and customers, relations with communities in which a company operates, and a concern for the environment. It is also evident in the transparency of a company’s accounting as manifested in footnotes to the financial statements, which can vary tremendously in clarity and detail.

Clearly, investors are prone to following herd instincts and to carrying both optimism and pessimism to extremes. Accordingly we are careful not to chase stocks when they are in vogue and generally take profits when a stock is near the high end of its range of recent years. Nor are we willing to sell stocks of good companies when they fall out of favor except for tax reasons or in cases where there has been a significant change in the basic outlook for the business. Thus we are contrarian in approach in the conviction that a DISCIPLINE OF BUYING LOW AND SELLING HIGH is the surest approach to consistently good investment performance.