Investment Strategy

We are value investors. We do not seek to time the market, nor do we seek to closely mimic an index in our security selection. Our investment philosophy is that a portfolio of mid-to-large capitalization ($2 billion minimum market capitalization) quality companies purchased at attractive valuations will outperform the market and offer below-average risk over the course of an economic cycle.

Our core investment strategy focuses across five U.S. sectors we believe represent the greatest risk-reward opportunity. The financial, energy, technology, healthcare and utility sectors combined represent approximately 50% of U.S. public companies, yet 70% of U.S. public company profits.

Part of our differentiation is more accurately forecasting long-term earnings. We believe that while earnings explain perhaps 40% of stock performance in the short-term, earnings, when adjusted intelligently for a firm's true cash-generating power, are the dominant factor in stock returns over long time horizons like our own.

A core position is less than 15% of the portfolio, so that we would seek to hold about 20-40 companies spread across the five sectors. We believe recurring revenue and dividends lessen risk profile, yet many of the companies we target may be susceptible to inflation pressure. We use energy as a hedge against inflation with an energy weighting not expected to exceed 20% of the portfolio under ordinary circumstances. Because we are opportunistic and patient, we view cash as dry powder.

We define “quality” companies as those with strong, cash-generating business models, competitive moats, recurring revenue streams, and shareholder-friendly managements with a history of dividend payments. We apply a skill set developed from our careers in fundamental analysis to identify companies that meet these criteria, and to then opportunistically acquire shares in response to market movements that offer a compelling valuation.

Once an investment has been added to the portfolio, we continue to monitor the shares and ensure that the investment thesis remains intact. We target a multi-year hold period for investments, and we are prepared to own a stock longer if it remains a compelling investment year after year. A disciplined approach to prices paid in a focused, low-volatility strategy should provide a margin of safety, thereby reducing risk and preserving capital during market downturns.

In particular, while stocks with solid, steady business models may fail to keep up with the market during aggressive bull markets, we expect the portfolio to outperform during bear markets and to deliver above-market returns on balance.