Our Approach To Investing
We believe that long-term risk-adjusted performance is best achieved by combining seasoned judgment with a well-defined and disciplined investment process.
We do our own research and analysis, in addition to reviewing many different third-party informational resources. And we maintain discipline on both the buy side and the sell side, constantly monitoring macro factors (such as market trends, interest rate forecasts and economic conditions) while also directly monitoring the business and financial health of securities issuers.
We are high-conviction investors. While diversified, our portfolios tend to include a limited selection of those securities that we believe represent the very best of what we have uncovered in our analysis.
The Principles Of Our Investment Philosophy
- Identify value. We look for securities that appear to be undervalued. This sets the stage for potential capital appreciation and long-term outperformance without undue risk to principal.
- Capitalize on “positive asymmetry”. The investment areas we focus on have common characteristics that provide an opportunity for upside appreciation while limiting the downside compared to more risky investments. We strive to build portfolios that can weather market cycles and limit losses in down environments, while capturing gains as markets rise.
- Balance risk and reward. We constantly monitor and evaluate risk/reward profiles, both at the individual security level and the portfolio level. We also look for potential catalysts that could change our level of conviction towards any particular position. Taking profits and limiting losses is an important part of our discipline, especially in our more conservative portfolios.
- Invest in what we know. We perform our own credit, equity, and interest-rate research. We track securities over time and develop a history with the issuer that is invaluable to our ongoing assessment of each security.
- Buy for the long term. By the nature of our investment process, we favor strong companies with solid long-term prospects. When we do trade, we opportunistically strive to generate incremental performance.
- Commit to performance. Our focus is on delivering performance for our clients, not on gathering the largest amount of assets. Our size has two key advantages: it lets us manage portfolios that are composed exclusively of our “best ideas,” and it lets us operate in sectors of the market that larger firms typically overlook.
Our Case for Active Investment Management
There’s no doubt that passive management is trending these days. And there are cases where it makes sense. For example, an employee choosing investments in a workplace retirement plan might be wise to choose a low-cost, large-cap index fund over an actively managed fund with high fees and an indifferent performance history.
But there are still many areas of the market that are not overly efficient, and where active management can potentially be quite effective. Those are the areas we focus on.
In some cases, these areas may be a particular class of securities, such as convertible securities. In other cases, opportunities exist in certain less-followed equities, such as small bank stocks or REITs that have a particular combination of characteristics that we believe are attractive.
For clients who want to have some passive investments in the mix, we are happy to identify those we believe may be appropriate. But so long as we see places where active management appears to offer real value, that’s where we will continue to look for ways to apply our experience and deliver value in a way a passive investment could not.