Structural Valuation Analysis (SVA™)

We have exclusively licensed SVA™, a quantitative methodology based on the theory of Accounting Dynamics, an intricate theory derived from principles of mathematics and physics, which was developed in the 1970s by the late theoretician, Dr. Verne H. Atrill.

If a company or sector meets our investment criteria, we employ the SVA™ methodology, where feasible, to assist us in identifying the optimal buy and sell levels. We also use it to forecast the direction of the broader market, specific industry sectors, commodity prices and currencies.

Our aim with SVA™ is to effectively purchase securities with efficient balance sheets at structural valuation support levels (“floors”) and sell them at resistance levels (“ceilings”).

Efficient Balance Sheet
Companies with weak, or even overly strong, balance sheets tend to underperform. We prefer companies that optimize their balance sheets, using an appropriate amount of leverage, though in the case of small cap companies we prefer little or no debt.

Structural Valuation Support
Every security, and the market as a whole, can be broken down into a series of valuation zones. These zones are bounded by breakpoints which are multiples of the adjusted book value (i.e., the accounting net worth) of each company. Each breakpoint offers structural valuation support—the bottom of each zone acts as a floor for a security’s valuation. Typically, the top of each zone acts as a ceiling or a resistance level at the next breakpoint. In which zone a company trades depends on its FMV and market psychology. When a security’s price inflects—up from a floor or down from a ceiling—buy or sell signals are given, as the next breakpoint typically behaves as a magnet drawing the security price to it. Market price movement from one valuation zone through a breakpoint and into another zone is a valuation change which may indicate a major improvement or deterioration in the outlook for the company.

Stop Loss/Profit Taking
The SVA™ methodology can suggest an effective stop loss point to minimize losses on a weakening position which has fallen through a floor. Conversely, if we have selected a security to purchase but the security or its sector is temporarily “on sell” according to SVA™, we can wait patiently until the lower buy point is reached. SVA™ may also help to realize profits efficiently by identifying the potential ceilings of our holdings.

SVA™ Charts
We use SVA™ charts to illustrate its historical trading price, where it is presently trading relative to historical breakpoints, whether it is set to move higher or lower based on the breakpoints and what its potential return might be. Along with the breakpoints, we overlay our analysis of the security’s historical and current intrinsic value or FMV.