Bill Miller managed to outperform the S&P 500 for 15 straight years as a portfolio manager at Legg Mason. The preeminent fund manager of his day, he was known as a savy stock picker and his quote reflects the enduring contradictions in investing.  

Buying a share is taking an ownership stake in a company. As an owner, an investor participates in the future cash flows generated by the company. The value of a share is based on the size and timing of these future cash flows.

Financial statements that are provided by companies are backward looking. While they may provide clues to what it is happening in the future it is important to remember they represent the past. To translate historical financial statements into future projections of cash flows our 150 equity analysts around the globe use a fundamental research approach.

A fundamental research approach means gaining a deep understanding of each investment. At its core, a fundamental investing approach means focusing on the future earnings of an investment and not its prospective price change. Our focus on fundamental research means we don’t fall victim to convincing stories to support the merits of an investment.

To learn more about the way we value shares read The art and science of valuing shares part 1 and part 2 and the Morningstar Guide to Share Investing