Investment Managment and Stock Selection
For the past 17 years, we have implemented our proprietary individual stock strategy for clients that want exposure to stocks but wish to own the highest quality companies. Clients hold individual stocks in their own Charles Schwab accounts (IRA and Non IRA). There are no additional fee overlays and the cost to trade stocks at Charles Schwab is zero.
Our portfolio utilizes the principals of famed investors Warren Buffet, Peter Lynch and Benjamin Graham to select the 40-50 highest quality companies with the least amount of forward risk.
Our criteria for stock selection include:
- Increasing Revenues and Profits
- Low Debt to Equity ratio
- History of share buybacks or increasing dividends
- Cleanliness of Balance Sheet
- Variety of industries
Generally these larger companies have strong franchises, wide competitive moats and plenty of cash. Historically the selection of high quality companies has led to outperformance in positive market conditions and more limited risk in down markets. During the most recent sustained market pullback in 2022, the S&P 500 Benchmark experienced a 20% decline and our portfolio of quality companies was lower by 11% during this period.
Investment Philosophy and Edge
The strategy is predicated on the belief that consistently superior long-term returns are generated by owning businesses that possess enduring competitive advantages and are managed with a commitment to shareholder value. We actively seek out companies that dominate their respective market niches, exhibit pricing power, and demonstrate exceptional capital allocation skills. The focus is on finding "wonderful companies at fair prices," prioritizing business quality over simply seeking deep value, thereby reducing the dependency on macro-economic shifts and speculative trends for performance.
Our proprietary 8-part algorithm screens for companies that meet the above criteria. We then refine the selection to 5-10 likely stocks that can be purchased for new money or replace existing portfolio companies. We then do a deep dive on company management, quarterly and annual statements and detailed fundamental stock research to select the best value and growth companies for clients.
Target Asset Allocation
Risk Management Profile
The primary risk mitigation in this strategy is the rigorous selection process itself. By focusing on low-debt, high-profit-margin companies, inherent financial risk is significantly reduced compared to the broader market. Furthermore, diversification across a variety of non-cyclical and robust industries ensures that the portfolio is not overly exposed to the downturns of any single sector. The historical beta (variability) of this portfolio tends to be lower than 1.0 relative to the S&P 500, reflecting its defensive characteristics.
Historical Returns
Over any three-year period, our Value and Growth portfolio has out performed the stock and bond benchmarks after all fees. The Risk Adjusted Return, return based on downside drawdowns is historically much higher than the stock benchmarks.
Disclaimer
While past performance is not a guarantee of future results, we are confident that the principals and algorithms we utilize is time-tested and generally will result in lower volatility than the broad market indices while still potentially producing significant future returns.