Investment Process

Merrell Brothers, LLC employs a disciplined and consistent investment process for every client.

Individual Stock Selection – There are more than 10,000 listed companies on the stock exchange. The entire stock universe is far too large to individually review each one. Merrell Brothers, LLC narrows the list using numerous tools. We frequently run a proprietary stock screen to update our watch list and we maintain an ongoing list of companies with good business models that meet our investing criteria. Our current list has approximately 200 companies that we are following, but companies may be added and dropped from the list regularly. Additionally, we automatically review the major newswires to highlight corporate events that may unlock value.

Individual Exchange Traded Funds (“ETF”) Selection – Merrell Brothers, LLC reviews the population of more than 1,000 ETFs to identify the most appropriate ETFs for our clients’ portfolio. Merrell Brothers, LLC believes that not all ETFs are created equal and our goal is to find a basket of superior ETFs that suit our clients.  We monitor, value, and research ETFs that will benefit your portfolio.  The ETF investments we make for you will depend on several personal factors including age, risk tolerance, and years until retirement.  We aim to invest in a basket of five to ten ETFs for clients.  Our team personalizes each portfolio allocation based on the needs and goals of our clients. We look for ETFs that minimize cost and tracking error and offer market liquidity. Many investors do not realize that ETFs do not exactly track the indexes they were created to mimic. Choosing an ETF with a high expense ratio that does not track the asset class recommended by our service runs the risk of sub-optimizing a client’s portfolio’s performance. We choose ETFs that are expected to have sufficient liquidity to allow client withdrawals at any time.

Preliminary reading to generate investment ideas – To determine which companies merit further analysis, we read about the company, review the firm’s investment presentation if available, and read the most recent earnings reports and conference call transcripts.

Thorough fundamental research – Upon deciding to do further research, we use several sources to try to gain a complete picture of the company and its business. We review the annual reports and focus on the CEO’s letter to shareholders to get a sense of the company’s overall direction and focus. We read the securities’ filings and look at their competitors to try to get a thorough understanding of the underlying economics of the business. We try to determine market growth rates and competitive threats.

Compare potential investment with current holdings – We compare the potential investment opportunities against our current holdings to determine if we should swap any investments.

Implement investment – When we buy an appropriate investment that has passed our rigorous tests and due diligence, we purchase shares through a block trade across all client accounts.

Monitor and review of holdings – We routinely monitor and review our portfolio holdings to determine the strengths and weaknesses of the business franchises.

Sell discipline – We intend to have a long investment period with our investments. We will sell if there is a fundamental change in the investment’s business model, emergence of new competitive threat, poor management decisions, or the economics of the business have changed. We will also sell if we believe the price has appreciated too much compared to its intrinsic value. Finally, we will sell if we come across a better investment opportunity than the current investment.

Methods of analysis – We analyze securities using fundamental analysis to determine the value of a security. This includes a continuous and through analysis of corporate financial statements, management teams, competitive advantages, and the general financial health of companies. The main sources of information we use for doing our research are annual reports, prospectuses, and filings with the SEC, financial newspapers and magazines, inspection of corporate activities, research services such as Morningstar and S&P, research materials prepared by others, and company press releases.

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