Investment ManagementMethodology
- Our disciplined fundamental approach identifies mispriced securities.
- We have equal competence in both stocks and bonds.
- Our methods are effective in varying market environments.
We believe that discipline is the most effective path to investment success; rigorous processes of historical analysis drive our strategic and tactical decisions. Reliance on forecasting uncertain future events is minimized, and consistent application of financial analysis concepts eliminates emotional decision-making.
In the stock market, there is a close correlation between the value of a company and its ability to make its business grow. Market history clearly shows that overpricing and underpricing of security classes, sectors and individual issues are occurring continuously. By building diversified portfolios of attractively priced, financially strong companies, we maximize our chances for investment success.
In bond market activities, we seek yield advantage over benchmark U.S. Treasury rates, considering many different risk factors in reaching our investment conclusions.
Our efforts are applied equally to all managed accounts so that all clients receive equal treatment. Within target allocation guidelines, we actively manage our client portfolios to improve risk/return characteristics.
Bonds are used to provide income and stability to client portfolios.
Two fundamental principles apply:
- Interest yields should increase with time to maturity.
- Interest yields should increase to compensate for other risks.
We seek significant yield advantage available through acceptance of modest risk increases.
Our methods are based on understanding and measuring risks of all kinds, emphasizing yield, stability, and value. We continually monitor:
- Credit risk Volatility risk
- Reinvestment risk Sector risk
- Liquidity risk Call risk
- Yield curve risk Political and legal risk
We measure interest rate spreads across maturities and among credit quality ratings.
Yield advantage comes through acceptance of modest risk increases. Comparing present levels to historic data makes reasoned investment decisions possible.
Our equity investment process research is driven by:
- Quality screening;
- Analysis of growth.
To control risk and improve return we:
- Calculate the theoretically proper valuation of individual stocks;
- Confirm a company's growth prospects through corporate analysis;
- Diversify across market sectors.
Because we manage money for others, we must first assure financial quality and market liquidity in the companies we consider. To that end we initially screen out companies with debt greater than half the total invested capital and companies whose market capitalization is less than $750 million.
We apply our valuation model to the remaining universe in order to determine the relationship of a stock's price to its underlying value. Over any short time period, a stock's price is affected most by supply and demand - a complex mixture of emotion, cash flows, economic and political news.
A stock's price moves much more quickly and more often than its value. But throughout history stocks, which are underpriced relative to a theoretically proper valuation of their growth have eventually risen to their fair value.
It is not likely that mere mortals can repetitively predict which stocks or industries or sectors are most likely to rise through fair value at any particular time - or which will have unexpected troubles. Thus we diversify portfolios across the economy, paying attention to how sector weightings in our managed portfolios compare to weightings in broad market indexes.
