How do we choose our investments?
We are value investors. We pursue a contrarian approach to investment selection and build diversified portfolios. Our focus is on those publicly traded companies which are being valued at a low multiple of earnings, cash flow, book value, or sales. Using a bottom up approach, we study companies whose share price is less than their intrinsic value. We search for inexpensive securities, focusing on areas of the stock market that are out of favor, unwanted or unloved. To be considered, a security must also offer both a margin of safety and attractive prospects for capital appreciation. We expect to generate superior portfolio returns by realizing gains when our investments more closely reflect their true worth.
Our approach favors securities of established businesses which have demonstrated consistent profitability. We study balance sheets and accounting conventions. Publicly available information provides financial and operating data in quarterly and annual reports. We also review Securities and Exchange Commission filings, company presentations and press releases, newspapers and magazines, and data available on the internet. We often visit companies in which we have an interest and make every effort to insure a company’s management is committed to increasing their shareholders’ values. The smaller the company, the more important it is for us to be comfortable with the management.
Our search for value spans the entire capitalization spectrum, from large-cap to micro-cap. In addition to common stock, we may invest in preferred stock, convertible securities, high yield debt obligations, hybrid securities, royalty trusts, partnership interests and other types of securities. We have traditionally invested in foreign securities, both those listed on a U.S. exchange, and those ordinary shares traded in the overseas market. Typically, our foreign investments have been limited to large-cap companies. The most important criterion, however, is that the investment offers the potential for an attractive total return.
We are investors, not traders. We make no attempt to time directional swings in the market, interest rates or exchange rates. We are not concerned with annual benchmark comparisons. Our portfolios generally hold between 25 and 35 individual securities. Historically, turnover has been less than 20% in any one year, indicating an average holding period of five years or more. Consequently, our client portfolios are fully invested at all times. Only rarely has cash represented more than 5% of portfolio value. Based on a 25 year record, we believe our approach will continue to generate superior risk-adjusted returns.