We aim to avoid lower quality stocks or so called ‘value traps’ by monitoring companies against three different types of risk:
- Valuation – extrapolating favourable trends and paying more than the intrinsic value of the business (e.g. avoiding a situation where something is positively impacting a company’s share price in the short-term but that isn’t sustainable longer-term)
- Earnings – the risk that the earnings of the company decline for cyclical or secular reasons (e.g. the industry or sector that the business operates in is itself in cyclical or long-term decline)
- Financial – debts overwhelm equity holders whose interests are subsequently diluted
In the diagram below we have set out some of the key factors we consider when seeking to uncover the most compelling value opportunities:
Past performance should not be taken as a guide to the future and dividend growth is not guaranteed. The value of your shares in Temple Bar and the income from them can fall as well as rise and you may lose money. This Trust may not be appropriate for investors who plan to withdraw their money within the short to medium term. A portion (60%) of the Trust’s management and financing expenses are charged to its capital account rather than to its income, which has the effect of increasing the Trust’s income (which may be taxable) whilst reducing its capital to an equivalent extent. This could constrain future capital and income growth. The effect of borrowings to finance the Trust’s investments is to magnify the volatility of its price and potential capital gains and losses. We recommend that you seek independent financial advice to ensure this Trust is suitable for your investment needs.