Structural Valuation Analysis (SVA™)

After TCC’s portfolio managers and analysts determine that a company or sector meets our fundamental investment criteria, we utilize our exclusively licensed Structural Valuation Analysis (SVA™) methodology to time buy and sell decisions on individual securities, as well as to forecast the direction of specific sectors and the broader market.

The SVA™ methodology is 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 physicist, Dr. Verne H. Atrill. TCC has licensed the SVA™ methodology from Strategic Analysis Corporation, an unaffiliated company founded by Dr. Atrill and now run by Ross Healy.

Our aim with SVA™ is to minimize risk and maximize return by purchasing securities with efficient balance sheets at significant discounts to their Fair Market Values (FMV) with Structural Valuation Support.

Efficient Balance Sheet
Companies with weak or overly strong balance sheets tend to underperform. We prefer companies who understand how to optimize their balance sheets.

Fair Market Value
We calculate a security’s FMV based on earnings expectations, prevailing and anticipated interest rates and profitability relative to the company's balance sheet. We want to buy securities that are trading at a significant discount to their FMV.

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 (net worth) of each company.

These breakpoints offer structural valuation support—the bottom of each zone acts as a floor and the top as a ceiling, for a stock's valuation. In which zone a company trades depends on its FMV and market psychology. When a stock 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 stock price to it. Stock 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. The buy or sell signal triggered by this price movement depends, obviously, on the direction of the transition.

Stop Loss
The SVA™ methodology can provide an effective stop loss to minimize losses on a deteriorating position which has fallen through a floor. It also helps identify when to book profits as securities hit ceilings.

SVA™ Charts
The SVA™ charts illustrate where the market has historically valued a stock, where it is presently valued relative to its FMV, whether the security is set to move higher or lower, and what its return potential might be.

Structural Valuation Analysis (SVA™) Example:
In the following chart of Microsoft, the stock declined from the level of approximately 15 times adjusted book value (BB+3) in January 2000 giving us a sell signal. The stock bounced temporarily at 8 times book value (BB) giving another sell signal when it negatively inflected at 10 times book value (BB+1). It wasn't until the stock fell to 4.5 times book value (LSG) and was trading at a 30% discount to its FMV that Microsoft became a buy in our work.