A: That typically depends on the size of the portfolio, but, in general, we aim to own 35-50 stocks in the Satellite component of the portfolio. We typically equal-weight wide moat and some narrow moat stocks but adjust the weighting depending on certain factors like the confidence in fair value estimates, historic volatility of the underlying position, and quality of balance sheet, for example.
A: The first "risk factors" were defined or discovered by academic researchers Eugene Fama and Ken French in their development of one of the largest securities databases in the world, the Center for Research in Securities Prices (CRSP). In their work, they discovered that, over the long term, small cap stocks and value or low priced stocks outperform the market as a whole and are, thus, "risk factors" or sources of long term outperformance that can be targeting in a portfolio. Further research by Fama and others have identified other factors like Momentum, Quality, and Low Volatility. Mutual Funds and Exchange Traded Funds (ETFs) can be used to target these risk factors, although no one knows for sure whether these factors will persist in the future.
A: Economic Moat is a term used to describe a company that has a defensible business position that allows the firm to earn "economic profits" or rates of return on invested capital that exceed the firm's own cost of capital. Attributes that give a company an economic moat are large market share; low-cost producer; patents, copyrights, government approvals and licenses; unique corporate culture; high customer switching costs; and the network effect.
A: Many analysts use business valuation techniques to estimate the value of a company. A number of different models exist to attempt to determine a company's value depending on the type of company being analyzed, but most involve some sort of discounted cash flow analysis. Because a company's cash flows and growth rates can't be know with certainty in the future, a company's fair or intrinsic value should be viewed as a fair value range around a center point with the range being larger based on the risk or uncertainty of the company. We purchase and rebalance wide and some narrow moat companies that trade at discounts at reasonable estimates of fair value in the Satellite portion of our portfolios.