Characteristics of outstanding companies according to the money manager Pantheon Investments, an SEC registered investment advisor!

Generate positive "economic" earnings, i.e. returns on invested capital exceed costs associated with that capital. High returns on equity are insufficient measures of performance since ROE is heavily influenced by financial leverage. Instead we look for high returns on invested capital, returns that exceed both the explicit cost of debt and implicit cost of equity.

Generate positive "free cash flow," i.e. net cash flow after required capital expenditures . While accounting earnings are a meaningful guide to a company`s current performance, aggressive accounting can be used to manipulate performance indicators in the short-term. Harder to manipulate is the firm`s cash register. We like the eloquence of Jerry McGuire`s euphemism, "Show me the money!"

Develop differentiated competencies through the assimilation of tangible and intangible assets combined with experience. Differentiated competencies can take the traditional form of products or services, or newer forms based exclusively on intellectual capital such as research and development or technological processes. Only with a distinct, core competency can a company generate superior margins.

Create or maintain sustainable impediments against competitors. Economic earnings can only be generated in the long-term if a company can successfully defend its competencies. Impediments can be patents, research and development, distribution channels, brand image, or various other means.

Retain an experienced management team and outside board of directors. Experienced management that has an ownership position in the firm is likely to act in the long-term interests of shareholders. Additionally, we look for boards` that have adopted strong corporate governance policies.

Maintain a strong balance sheet and forthright accounting disclosure. A strong balance sheet is paramount in today`s global economy to survive unexpected cyclical and competitive pressures. Disclosure is also paramount for owners to be able to adequately discern the company`s fortunes and prospects.

Other Investment Opportunities

Turnaround situations. Companies with outstanding prospects who have been badly managed but have undergone recent management changes.

Opportunism to overemotional behavior. Companies whose share prices have deteriorated significantly due to spurious concerns but whose fundamental operations remain sound.

Corporate Spin-offs. Companies who are being "spun-off" by a large corporation and who retain ongoing management who is incentivized to unlock hidden resource value.

Acquisition Arbitrage. Short-term investment to enhance cash returns where we believe firmly that an acquisition will occur while the market places greater uncertainty as to the outcome.