EDMP, Inc. Investment Management

EDMP, Inc. is a professional registered investment advisory dedicated to producing reliable above-average returns for individual and institutional clients. Our firm operates under a proven and time tested investment philosophy that controls risk without sacrificing long-term results. The investment philosophy developed and followed is a focused, disciplined, commonsense approach to investing. Get our Full Brochure (in pdf format).

EDMP is an abbreviation for Earnings Determine Market Price. Our name signifies our confidence that we can thoroughly answer the critical questions of what to buy, when to buy and when to sell and represents the doctrine that drives our investing process.

EDMP, Inc. is not a brokerage firm or broker. We are hired by the brokerage community to manage equity, fixed and balanced accounts. We make the buy, sell and hold decision in the account. All financial planning and consulting are administered by the financial consultant for the client.

Hiring a money manager is like having your own private mutual fund. However, unlike a mutual fund, your account is not commingled. Each account is managed separately. EDMP, Inc. is given limited power of attorney on each account that we manage. This means we are able to place trades in the clients account without contacting the client. The client is notified by the custodial firm of all buy and sells in the account.

To answer the first question of what to buy, our investment logic is very simple. We buy the best companies in America, at reasonable values and hold them for the long-run. We screen a universe of several thousand companies and run them through various criteria that are then placed on a review list. Each company on the list should meet most of the following criteria:

* "A" rated or better.
* Industry Leadership (1-5)
* Minimum of 5 Years (Prefer 10 Years) of Historical 15%-20% Earnings per share growth.
* History of dividend increases
* 100 Million dollars or more in sales
* US Companies * Excess of 1 Billion Dollars of market value.
* Consensus Forecast of 15%-20% future earnings growth.

Once we have identified these companies, we then review each company extensively before any decision is made. This moves us into the next segment of when to buy.

The logic of EDMP's investment philosophy is driven by the commonsense, realization that to successfully invest in common stocks, you must know what makes the price of a stock rise in the long-run. Extensive research and analysis revealed the answer that is overwhelmingly supported by a preponderance of undeniable and conclusive historical evidence: In the long-run, it's earnings that determine market price and dividend income.

To over simplify a review of a company, "a picture says a thousand words". Below is a twenty year graph of a company's monthly closing prices. You can clearly see that the line is very jagged.

Next, is a picture of the same company's plotted annual earnings. This clearly shows a correlation between earnings and price.

Finally, below are the two charts overlaid on each other. Take notice of the scale on the left of the three examples. When the top two are combined, they look like the chart below.

You can see, from the charts, that the price of the stock follows the growth rate. It distinctly shows how a stock can be over valued or undervalued but, eventually the price comes back to the earnings line.

Below is a 5 year forecasting chart of XYZ. A historical perspective of the company is important but, the future does not necessarily follow the past. The forecasting chart is just a way that we can pictorially look at a company.

First, we chart one complete calendar year of weekly closing prices and the weekly closing prices for the current year. The column on the left represents the scale for the prices. The column on the right represents Price Earnings Ratios for the earnings forecast. The green mountain is the estimated consensus growth rate for the next 5 years. There are 16 analysts in this consensus, of which they can be from major brokerage firms and research houses.

The EPS row represents the current and estimated earnings per share. The DIV row represents the current and estimated dividend rate. This chart clearly shows that XYZ is excessively overvalued. Its estimated growth rate for the next five years is 17.0%. The price for XYZ is clearly overvalued and is trading at approximately at a price earnings ratio of 47.9. This means that XYZ is trading at 47.9 times more than it is estimated to earn.

To put it simply: If you owned a shoe store and it was netting you $100,000 a year, how much would you sell it for? If you sold it for $100,000, you will have sold it for a PE ratio of 1. If you sold it for $500,000 you would have a PE Ratio of 5. However, if you sold it for $4,790,000 you would have a PE Ratio of 47.9.

The point being, why pay more for a company than what its estimated growth rate is going to be. The questions are: Why would someone pay such an excessive price for this company? Why would you pay more than what the company expected to earn?