Tuesday, January 8, 2019
A Look at Climate Change Disclosures

Wednesday, January 2, 2019
Quants: Point-in-Time Data for Backtesting

Friday, December 28, 2018
Now Showing: Controls & Procedures

Thursday, December 27, 2018
A Reminder on Non-GAAP Reporting Rules

Monday, December 17, 2018
Researching PG&E’s Wildfire Risk

Wednesday, December 12, 2018
Tracking Brexit Disclosures

Thursday, December 6, 2018
Campbell Soup: Looking Behind the Label

Sunday, December 2, 2018
SEC Comment Letters: The Amazon Example

Wednesday, November 28, 2018
Measuring Big Pharma’s Chemical Dependency

Monday, November 26, 2018
Analysts, Can You Relate? A True Story

Monday, November 19, 2018
Digging Up Historical Trend Data: Quest Example

Sunday, November 11, 2018
Cost of Revenue, SG&A: Q3 Update

Monday, November 5, 2018
Lease Accounting: FedEx vs. UPS

Saturday, November 3, 2018
New Email Alerting Powers

Wednesday, October 31, 2018
PTC and Two Tales of Revenue

Tuesday, October 30, 2018
10-K/Q Section Text Change Detection

Sunday, October 28, 2018
Finding Purchase Price Allocation

Sunday, October 21, 2018
Charting Netflix Growth in Three Ways

Wednesday, October 17, 2018
Interesting Data on Interest Income

Thursday, October 11, 2018
The Decline of Sears in Three Charts

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Global Return Asset Management is an investment firm based in New York, with a long-term focus and attention to environmental, social, and governance factors as well as risk and financial performance. Calcbench talked with chief investment officer Elliot Trexler about his stock valuation philosophy and how he uses Calcbench data (yes, he’s a customer) to deliver value investing.

Q: Tell us about Global Return Asset Management’s investment strategy.

Global Return Asset Management is a value investment firm focused on risk management. Unlike Wall Street, which is always looking for all the reasons a stock might increase in value, I flip that entire approach on its head. I’m looking for risk and all the reasons a stock might decline in value. Specifically, my strategy is to identify risks within a company and then assess whether those risks are compensated by the upside potential.

Q: What are you trying to find with a great investment?

I’m looking for an investment that generates a huge return without the commensurate risk; that’s obvious. The market is currently loaded with opportunities for average returns, but the difference between an average and a great return is the amount of risk you bear to earn that return.

Using a $10 investment, it’s easy to see this. Opportunity A, you risk $3 and earn $1, for a 33 percent return. There are lots of these stocks available. Opportunity B, you risk $2 and earn $1, for a 50 percent return. From our high cash balance, low net exposure and returns, you can see I am focused on getting a lot of Opportunity B.

As for actual metrics or specific characteristics, what I’m looking for sounds an awful lot like what typical managers say: “strong margins, growing sales,” et cetera. But because of my focus on risk, I’m able to generate much higher returns and do it with a fraction of the risk.

Analyzing a company’s ESG factors helps me identify risks within a company’s operations. I’ve never seen a company list “Risk” on its financial statements, you have to look beyond these to find risk. ESG is one of the methods we use.

Q: What do a company’s ESG factors tell you about it?

ESG factors give me a broader and deeper understanding of a company’s operations, management focus, and the investment’s risk-reward ratio, for example. ESG factors also illuminate the quality of the company, the quality of its earnings and financial statements, and the potential return.

Q: How difficult is it to track ESG disclosures across multiple companies?

It’s a lot easier now that I use Calcbench. With Calcbench I can focus on specific sections of companies’ disclosures. Even better, I can see how the companies have changed their disclosures over the years. Downloading a PDF version of a 10-K and then using Control-F to look for changes isn’t sufficient, because I could be using the wrong search words. And even if I found the right section, it’s very time consuming to review every line between two filings in an attempt to spot any changes; and, even if I did this, I’m apt to miss something.

Q: Can you give us an example of an ESG factor you look for and how that translates into risk?

If I see a company changing its accounting policies every other quarter, it tells me that management is finessing their financials to meet Wall Street’s estimates, their compensation hurdles, or both. It could also indicate that the company’s fundamentals are deteriorating.

As for how this translates into risk, let’s assume a company’s fundamentals are deteriorating. At some point the company will have to acknowledge this, which might require forecasting downward guidance. Worse, if in the past the company has finessed its financials to hide this deterioration, they might have legal or regulatory consequences, or even need to restate their earnings.

Any of these would cause the company’s stock to drastically decline. Had I not reviewed the company’s accounting policies — a governance factor — I would have not identified these risks.

There can be many reasons why a company could go up in value, but it only takes one reason for it to go down in value. I want to find those reasons.

Q: Does the investment industry have industry-wide standards on what an ESG factor is, and how to address those factors when investing?

Sort of. There are many organizations that support ESG initiatives and offer guidance. The United Nations Principles for Responsible Investing is probably the world’s largest and most established organization addressing ESG. I’m on the committee that’s drafting the industry guidelines for hedge fund managers to incorporate ESG analysis into their investment processes. And while our guidelines will be suggestive in nature, I suspect they’ll be the foundation for industry standards.

Q: How does Calcbench help you with your with ESG research?

Calcbench is a phenomenal resource for several reasons. First, I get unfiltered data directly from the company’s SEC filings. I don’t want a company’s filings delivered to me via an outside service provider because I have no idea how that service provider may have altered the filing. This isn’t done maliciously, but I’ve checked and there are errors in the software used.

Second, I’m able to focus on specific sections of a filing and have these exported directly into my Excel templates. And I can do this with confidence because the data is in XBRL format.

Additionally, hard-to-find footnotes — which is where I find the important data I need — is easily located with Calcbench. And again, I can import this directly into my templates.

Finally, especially as it relates to a Risk Disclosures and ESG, I can track text changes in every filing. This saves me time and lets me quickly determine whether a new risk exists or a previous risk no longer exists.

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