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Market-beating value manager shares his most important method for picking winning stocks

  • Robert Olstein says investors should focus on a company's ability to generate cash.
  • Olstein founded Olstein Capital Management in 1995. His firm has $900 million in assets under management, according to the manager.

  • The Olstein All Cap Value Fund generated 10.2 percent annualized returns since its inception in 1995 through March 2017, compared with an 8.8 percent annualized return for the Russell 3000.

Robert Olstein
CNBC
Robert Olstein

Robert Olstein, founder of Olstein Capital Management, says investors should focus on a company's cash generation ability to achieve success.

CNBC's Mike Santoli spoke with Olstein in an exclusive interview for CNBC PRO. Santoli asked the value manager about his investment philosophy.

"We believe in ripping apart financial statements, looking behind the numbers and coming up with what we think is a private market value of a company based on our forecast of free cash flow," Olstein said. "We think the most important metric is free cash flow."

He also shared the key risk management strategy his firm uses to protect against large losses:

"The answer is we've learned that when what we think is going to happen gets rocked, we leave, stay away for 30 days and re-pitch it. My biggest losses have come when I have made an excuse why I still need to own this stock ... Go to the sidelines, you can always come back."

Olstein founded Olstein Capital Management in 1995. He pioneered forensic analysis of corporate accounting practices and balance sheets by publishing the "Quality of Earnings Report." His firm has $900 million in assets under management, according to the manager.

The Olstein All Cap Value Fund generated 10.2 percent annualized returns since its inception in 1995 through Mar. 2017, compared with an 8.8 percent annualized return for the Russell 3000.

See here for the full CNBC PRO report and the interview video.