The Blackcrane Investment Process

Step 1: Idea Generation

  • Blackcrane’s proprietary Information Screen systematically identifies companies that have reported earnings within the past 24 hours.
  • On average, roughly 50-100 companies report an earnings beat or miss daily. Large surprises are targeted as a general rule.
  • After filtering for non-operational surprises, roughly 4-5 top ideas are discussed during the daily investment meeting, and the top 1-2 candidates are selected for further diligence.

Step 2: Investment Analysis

We seek to invest in businesses that not only possess superior fundamentals that have been overlooked by the market, but ones that are also likely to deliver earnings that consistently surpass consensus expectations.

Step 3: Portfolio Construction

  • Target 20-40 high-conviction holdings
  • Generally start with 1%-3% holding and will increase holding size to a maximum of 7%-10% based on level of conviction
  • Minimum market capitalization target of ~$1 billion
  • Avoid strict guidelines around specific regions, countries, and/or sectors
  • Look for stocks that have sufficient liquidity to support exit within 4-5 days

Step 4: Sell Discipline

  • Price targets based on valuation serve as initial reference points; we utilize information targets to help fine-tune the timing of the final exit
  • Stocks with less than 10% anticipated upside relative to future consensus expectations are defined as having no remaining information targets that are actionable
  • Holdings that underperform their respective sectors/regions by over 6%, or that are down 20% from initial purchase, trigger a mandatory review

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