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The development of our investment philosophy spans more than two decades during which both of our portfolio managers/analysts have been involved in various facets of the investment industry. We have the advantage of a long-term perspective, and expertise attained by following particular stock sectors since our careers began. This experience, in large mutual fund companies such as Dreyfus, and Founders, and in smaller investment management firms such as Cambiar Investors, Inc., has allowed our managers to synthesize the best practices seen in each setting. Our strategy, developed from this fusion of knowledge, has been seasoned by experience in both up and down stock market environments.
Because we are small, our decision making process is streamlined, efficient, and supremely adaptable. We find that the investment committee approach, which is central to our stock selection process, works very effectively with fewer professionals involved. We believe that focusing on selective sectors, chosen for specific reasons, best meets the needs of our clients. Capital preservation and growth, over a long-term, 3-5 year investment horizon, are our fundamental goals.
Investment Process
The investment process primarily relies on stock selection using a bottom-up, fundamental approach that also takes into account top-down and sector factors. There are some instances where foreign companies, utilities, and ultra small cap stocks, are eliminated from consideration because they are not appropriate for our conservative, high quality, long-term growth investment strategy. These stocks may have unacceptable risk factors including regulatory issues, unacceptable balance sheet risk, and currency and political concerns.
Portfolio Construction
Critical decisions that affect portfolio construction are made by our two investment professionals. Each of our managers has expertise in specific sectors. Acting within their area of expertise, our managers select stocks from a watch list of potential investments. This list is a compilation of stocks that has been developed over the years as we have followed specific industries, and through fundamental analysis of individual companies. During investment committee meetings, stocks are presented for consideration by one manager acting as stock analyst while the other manager focuses on filling the role of portfolio manager. Both assess the relative merits of a given stock and review the pertinent investment criteria policies to determine which stocks are most appropriate for a particular portfolio. Decisions about stock selection, size of investment, sector weightings, and changes to portfolios are reached by consensus of the two committee members.
Asset Allocation
We focus on defining the most appropriate mix of assets for our clients' portfolios based on their individual goals and preferences. We work closely with our clients to match their objectives with an appropriately designed portfolio of assets. We determine that mix of assets by combining our assessment of the current market with our understanding of the client's stated financial objectives, risk tolerance, income needs, and growth goals.
Risk
We attempt to minimize known risks with a risk averse approach. We look for companies with strong fundamentals and low relative valuations. A screened stock selection process minimizes exposure to riskier sectors and implements diversification strategies with an emphasis on risk reduction. Further, a qualitative measurement approach that focuses on factors such as high quality of management, high earnings predictability, dominant market share, and high return on equity is used in stock selection. Position sizes and sector weightings are limited to contain risk.
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