How frequently do the ratings change?

The ratings get updated on a daily basis, however, there may not be major changes to the ratings unless there are large fluctuations in price thereby affecting margin of safety. Besides that, the large factors that influence ratings are earnings, balance sheet numbers and other governance factors which are periodic events. When these numbers get updated or reported, there could be major changes in ratings.

What is the time frame for which these ratings should be viewed?

The ratings are designed to give a 5 year view on underlying stocks and business. While evaluating the Samco Stock Ratings, one should look at them from a long term investment point of view.

The limitations of ratings in shorter time frames/cycles?

For a lot of highly cyclical businesses, there shall be huge fluctuations in prices in the short term. The ratings are designed to identify long term compounders that can create long term wealth. Also, from time to time there are a lot of fads that could result in price movements. This means that in shorter time frames, even lower rated stocks could go up and outperform highly rated stocks.

How do we evaluate newly listed companies?

As long as there is adequate data available, even newly listed companies get rated. In case there is no adequate data, the companies remain unrated.

How do we derive margin of safety and underlying value of each business?

The margin of safety is derived as the difference between the value of a business and its price. While computing the value of each business, several factors are taken into consideration such as companies’ underlying strength and therefore premium/discount to peers, the business’ growth potential, peer group valuation multiples, global valuation multiples for sectors, etc.

What are the pros and cons tags for each business?

In addition to ratings, each business has several pros and cons tags. These elaborate what is working for the company and can be a driver for creating value and what’s not working for the company and that can destroy value. These shall help investors get a more detailed understanding of the business.