Clients, you know that our communications are you-centric: we prefer to focus on the situations, challenges, and concerns facing you. But from time to time it makes sense to talk about the tools and techniques we use to meet those issues. Let us give you some background and then introduce a strategy that’s become an important tool in portfolio reviews: the Twenty Stock Concept.

There are many ways to invest for the long haul, and we strive to participate in the growth of the economy over time. Many people’s financial objectives require the growth of capital, whether to improve their financial position, build toward retirement, or preserve purchasing power.

We manage individual stocks for people (which, by the way, is one of the services that sets our shop apart). Because we prefer to invest in the ownership of carefully chosen companies rather than buy investment products made of hundreds of holdings, it’s become more and more important for us to develop a systematic and efficient way to monitor and adjust portfolios over time.

At any given time, our Buy List includes 30 to 35 equity opportunities, which we supplement with more diversified ballast holdings. Client accounts may then wind up with even more names in them, as sometimes positions are held even after they’ve rotated off the Buy List. Doing it this way creates a lot of moving parts…

… which is where the Twenty Stock Concept comes in! This strategy helps us pare things back to only those parts of our investment philosophy that we feel are most fundamental. This list of holdings becomes the template from which we work for new portfolios and for reviews of existing portfolios.

The foundation of the Twenty Stock Concept is great companies trading at fair prices. These are usually blue-chip companies that dominate their sectors. They are our first picks, and we expect to hold them for a long time. We usually have 10 to 12 of these blue chips on our list.

To round out the list, we select what we perceive to be the best opportunities from the rest of the Buy List. These will include cyclical companies that we hope and believe we are purchasing at favorable points in the cycle. The rest of the opportunities may include other bargains from anywhere else in the investment universe.

Because the Twenty Stock Concept is a starting place, a template, not all of our holdings are fundamental enough to make the cut.

What gets left out? Our main investment approach also includes a handful of speculative growth-seeking holdings. Some of these may be smaller, unproven companies that we see explosive potential in. Others are regional or sector plays in areas that may or may not pan out. We think there is a place for these holdings—otherwise we would not have them to begin with. But some clients may not need or want the turnover and volatility they bring.

As an in-house system, the Twenty Stock Concept serves two functions for us: it allows us to provide a focused offering for those who prefer to own a smaller number of names, and it gives us a consistent approach that we makes our services available to smaller accounts than we would otherwise have the capacity to manage.

No guarantees, of course. We base our work on our opinions; no matter how carefully we do our research, sometimes the future confounds us.

But it is intensely interesting, and often rewarding. Clients, if you would like to talk about this or anything else, please email or call.

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Investing involves risk including loss of principal.

No strategy assures success or protects against loss.

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