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Ockham Wealth Advisors employs the Research Methodology of Ockham Research LLC. Ockham Research adheres to the philosophy first championed by William of Ockham. Ockham’s Razor promotes the idea of cutting away what is unnecessary or redundant. If you take away extraneous elements, there are fewer impediments to comprehension. The concept is to take what appears complex and simplify it into something much clearer and thus more useful. In the case of financial markets, copious amounts of financial data are available and widely used, but Ockham Research has concentrated all of that information into a few key measures for valuing securities.
Ockham Research combines the lessons of Ockham’s Razor with the value investing methodology of Benjamin Graham. Benjamin Graham is famous for saying, “In the short run, the market is a voting machine but in the long run it is a weighing machine.” He succinctly stated that short term movements rely on many factors such as investor sentiment, momentum, psychology, and breaking news about a particular security. In the long term, the market will ensure an efficient “weighing” of the underlying or intrinsic value of a security. Ockham Research understands that the short term market movements are nearly impossible to predict consistently. However, with a long term approach it is easier to identify those securities that are undervalued.
Unconventional Valuations
Ockham Research follows a four-step valuation process for individual securities. Our methodology is the logical result of decades of analysis combined with the discipline necessary to adhere to this framework.
- Create a historical database of individual securities prices, sales, cash earnings, and dividends.
- Assign valuation ranges for each security based upon the average annual highs and lows for price to sales, price to cash earnings, and dividends.
- Utilize these valuation ranges as the bands to identify a stock’s conventional high and low valuations.
- Identify stocks whose share price has moved outside of these conventional valuations.
Ratings Methodology
Our ratings methodology is a simple one: “Buy” ratings are reserved for securities that are priced below their average annual lows with respect to their normal per share metrics, “Hold” ratings are applied when a security is valued within its historical high and low range, and “Sell” ratings are applied when a security is priced above its average annual high with respect to its per share metrics.
An “oxymoron” is a combination of two contradictory words. In our opinion, “conventional” and “wisdom” are contradictory as they relate to traditional investment research activities. The poor performance record of professional investors is compelling evidence: we believe that you should be very suspicious of strong consensus among research analysts and "Wall Street" strategists.
Ockham Research is an independent equity research provider that seeks to combine the best techniques of traditional financial analysis with proprietary market analysis procedures. Market analysis tries to determine the extent to which the conclusions reached in the financial analysis process are already incorporated into the price of the security.
Marsh Douthat, CFA, the founder and president of Ockham Research, has been active in the investment field for nearly thirty years. He has established an excellent real-time performance record at Ockham. The Ockham investment strategy is best defined as "Contrary Opinion". Whenever and wherever a broad consensus develops in the securities markets, Ockham Research will be looking for opportunities to invest contrary to that consensus.
Benjamin Graham said in The Intelligent Investor (Harper & Row, 1973) that opportunity for consistent, above average results requires ...
“ ... policies which are inherently sound and promising and are not popular on Wall Street.”
Our research attempts to quantify consensus in the financial markets. We measure the intensity of investor sentiment at the market level and the individual equity security level. Complimenting traditional financial analysis with market analysis offers the investor enhanced possibilities of above average returns.
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