Investment Discipline

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We are bottom-up. That means we start by looking at individual companies and we build our investment themes from there. Initially, we look at company earnings, profitability, cash flow, products and management. We like companies that make money on a consistent basis, the earnings stream grows at a reasonable rate, the management is bullish on their businesses going forward and they have a good history of execution. The ultimate question is what will these company be worth if they execute their business plan, what is the price today and can we make money as investors assuming they are successful. This is called fundamental analysis. The second step is to utilize tools that enable us to purchase securities at opportunistic price points. Some people never pay retail prices because they always hit the sale when they go shopping. That is what we try to do. We like to buy when securities are on sale. The study of price movement is called technical analysis. As we go through this research process investment themes begin to emerge. Based on these themes we find investment vehicles for our client’s portfolio that are consistent with their investment objectives, time horizon and risk tolerance.

For example, based on our research process, we noticed that the companies that provide equipment, services and technology to companies that explore and drill for oil and natural gas have good earnings, profit margins, cash flow, and their earnings are not as sensitive to the price of oil as are the exploration and production or the refining companies. The managers in this industry are bullish on the long-term prospects of their businesses. Recently, oil prices fell from $149 per barrel to around $65 per barrel and these stocks have lost 50% to 70% of their value. We think this sell-off represents an opportunity to accumulate these securities as our current bottom-up research indicates these companies represent long-term value for our clients relative to other investment alternatives. For our client’s portfolios, we can achieve exposure to these companies through individual stocks, sector specific exchange-traded funds (ETFs) or even call options for our most aggressive clients. The solution depends on the client’s investment objectives, risk tolerance and time horizon. It is not rocket science, it is just work and we have a passion for it.