At Echt Capital, we blend disciplined value investing with rigorous financial-statement analysis inspired by Professor Stephen Penman’s framework. As our Investment Committee Advisor, Professor Penman provides independent oversight that helps ensure our valuation work reflects the analytical discipline he pioneered. We focus on uncovering high-quality companies whose intrinsic value is meaningfully higher than what the market recognizes today. By emphasizing earnings quality, sustainable cash flows, and conservative residual-income valuation, we avoid value traps and invest only where the long-term fundamentals are truly compelling.
Our process begins with selective idea sourcing through trusted investor networks, industry relationships, and quantitative filters. We screen for durable business models, strong economics, and clear evidence of real—not just reported—profitability. Once a company passes our initial criteria, we conduct a deeper business review, using our 30+ years of healthcare operating experience to evaluate competitive positioning, management credibility, and risk factors that are often missed by conventional analysis.
When a business demonstrates both quality and resilience, we perform a full intrinsic-value assessment using Penman-style tools such as earnings-quality checks, reverse DCFs, and residual-income models. We invest only when the potential upside is at least twice the downside and when there is a minimum 40% margin of safety. This disciplined valuation approach ensures that every investment offers a compelling, asymmetric reward-to-risk profile.
Only our highest-conviction ideas enter the portfolio, sized based on business strength, risk characteristics, and clarity of thesis. After investing, we continuously monitor each position, re-evaluating fundamentals and valuation to ensure the thesis remains intact. When appropriate, we use covered-call overlays to reduce volatility and enhance returns without compromising long-term upside.
Our goal is simple: combine deep fundamental research, proven valuation techniques, and healthcare domain expertise to build a concentrated portfolio of mispriced quality businesses—protecting capital while compounding it with discipline and clarity.
Below is an interview with Professor Stephen Penman, whose valuation framework plays an important role in our investment process.