Founded in 1995, Olstein Capital Management follows an accounting-driven, value-oriented investing philosophy based on the premise that the price of a common stock may not reflect the true value of a company’s underlying business.
OCM’s investment process utilizes analytical and valuation methods pioneered by Robert Olstein as co-founder and publisher of The Quality of Earnings Report. OCM believes that there is a strong correlation between above-average investment performance and error avoidance. To achieve long-term success, an investor must first consider downside risk before considering the potential for appreciation. OCM further believes that to properly assess downside risk an investor must undertake a thorough analysis of a company’s accounting practices and an assessment of a company’s Quality of Earnings. For OCM, a forensic analysis of financial statements reveals the Quality of a company’s Earnings, the success of its strategy, sustainability of its performance and impact of management decisions on future cash flow and future value of the business.
OCM finds a significant number of investment opportunities in companies suffering the effects of what it believes are temporary problems that mask the company’s true value. Olstein seeks to identify companies whose stock price has fallen considerably below its private market value due to temporary problems such as: missed earnings estimates, overreaction to short-term results or overall negative market psychology.
Olstein’s analysis focuses on how a company’s operations generate sustainable free cash flow, the level of ongoing investment required to maintain and/or grow free cash flow and how much of a company’s free cash flow is available to investors. Since OCM determines a company’s intrinsic value based on discounted free cash flow, reliable company valuations require a thorough understanding of a company’s accounting practices and an assessment of a company’s Quality of Earnings. OCM undertakes an intensive, forensic analysis of a company’s financial statements, accompanying footnotes, shareholder reports and other required disclosures to assess the quality of its earnings. OCM’s analysis seeks to: determine if a company’s accounting policies reflect business reality; adjust reported earnings to eliminate management biases, and identify positive or negative factors that may affect future free cash flow.