Investment Philosophy
At SKY, we invest based on some simple but timeless principles:
Earnings growth drives stock appreciation. SKY Investment Group believes that
long-term earnings growth is the ultimate driver of share price appreciation. Therefore, preferred
investment candidates are companies that we feel can grow their earnings faster than the economy
for a prolonged period of time. Our preferred investment horizon is ten or more years, so we look
for companies that dominate their industries and are likely to continue to do so.
Dividends are an important source of return. Dividends have historically
accounted for about 50% of the returns generated by common stock and provide portfolio
stability when financial markets turn difficult. As a result, we tend to favor companies that
pay and increase dividends regularly.
Management quality matters. One of the best measures of the effectiveness of corporate
management is the trend in a company’s profitability. We generally prefer to invest in companies
whose profit margins are stable or rising and where management is careful about allocating capital since poor capital allocation decisions ultimately penalize shareholders through declining corporate
profitability.
Don’t overpay for stocks. Even the best company can be a poor
investment if it is purchased for an excessive price. SKY looks closely at every investment
candidate to try to determine the company’s true value. If we feel the valuation is
excessive, we avoid investing in the company.
Avoid unnecessary taxes and transaction costs. Since many of our clients are
concerned about capital gains taxes, we try to limit portfolio turnover. Recently, our
portfolio turnover has averaged about 15% which compares favorably with many institutional
strategies with turnover rates of 100% or more per year. Although circumstances can change, we always do our best to balance the cost of taxes versus the
risk of loss that can arise from holding an overpriced stock.
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