Equity Management
Our approach to managing equity portfolios is based on the premise that the ultimate driver of
share price appreciation is a company’s underlying earnings growth. Our objective is to acquire
companies when they are selling below their intrinsic value and to allow the underlying earnings
growth to drive share prices higher.
Investment candidates tend to be distributed across major economic sectors. The commitment we make
to a particular sector is based on our view of the opportunities and valuations within the sector,
balanced against our desire to reduce risk and preserve capital. Generally, we try to maintain
exposure to the major economic sectors, although if the risk of loss seems excessive, we will cut
back our position in a particular area.
Our equity holdings tend to be highly profitable, financially strong and abundant generators of operating and free cash flow. We also look closely at a company's record of capital allocation – companies that utilize their cash resources wisely tend to make better investments than those that are less disciplined.
Equity Investment Strategy
Over the course of the economic cycle, different companies and sectors tend to move into and out
of favor. We use these periods to enhance our clients’ portfolios by adding to positions which are
temporarily out of favor and reducing positions that seem excessively valued. These changes tend to
be incremental not dramatic. It has been our experience that sudden changes in portfolio strategy
increase the risk of permanent loss.
An outgrowth of our strategy is that portfolio turnover tends to be low and equity holdings are recognizable to clients. In our experience, private clients are more comfortable with investments in familiar companies. This is important during more difficult market environments when clients can grow anxious if they aren’t confident in their investment holdings. One of our primary objectives is to build a portfolio in which clients can have confidence during both good and difficult economic times.
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