Although numerous investment managers, most notably Warren Buffett, base their approach on the analytical teachings of renowned pioneer Benjamin Graham, ICON has taken his methodology one step further.

While Graham sought to estimate intrinsic value through an equation he published in 1962 titled “Central Value Formula,” he was unable to confirm its accuracy, lacking appropriate measures for normalized earnings or future earnings growth. ICON’s modifications to Graham’s formula incorporate the following raw data from independent sources:

• Average earnings per share
• Future earnings growth estimates
• Beta or risk measure
• AAA bond yield

Having determined intrinsic value based on these financial fundamentals, we then consider current market price, creating a value-to-price ratio. This tells us whether a sector, industry or security is under- or overpriced relative to our estimate of intrinsic value. Typically, we look for industries that are priced below our estimates of fair value while demonstrating six months of relative strength.

In doing so, we aim to capture market themes that historically have lasted between one and two years. As themes develop, industries can migrate in size and style, placing arbitrary barriers or restrictions on other investment managers. In contrast, as a Multi Cap manager, we view the market as one asset class, affording us the flexibility to go anywhere on the grid in order to find value and identify changing themes.

Our system helps us identify underpriced industries beginning to show market leadership. However, because the ICON methodology is analytical, quantitative and non-emotional, we do not rely on traditional brokerage research, nor do we visit companies or meet with management. Instead, we buy data, compute value and follow our methodology.