Walking one of my favorite paths recently, I came to this modest bridge over a small stream.
It occurred to me that if I went across it, I would arrive in the future—say, a minute later. But carrying it one step farther, when you think about it, the whole rest of my life was waiting for me on the other side of that bridge.
(They say exercise and nature both boost creativity. Creativity—isn’t that a polite word for the thoughts and connections spinning in my head?)
When I woke up the next morning, the idea was still with me, and still growing. The whole rest of my life was waiting for me when I threw the covers off and got out of bed. The whole rest of my life was waiting for me when I walked out the door to begin the new day.
We strive to make the most of the moments as they come. And we treasure the lessons and memories we’ve accumulated. Life is partly a question of balancing the present moment—and the past—with the possibilities of the future.
The future is where things may be different and better; it is still malleable in a way the past is not.
Likewise, our work with you reflects these elements of time. We try to understand the past: where you are coming from. And the present: your current situation. And the future: what you are aiming for.
Balance among these things is vital. Thinking about the future, we may make tomorrow’s moments better. Understanding the past, we get a sense of the narrative and continuity of our lives. But the present moment is where we live, where we have the chance to find happiness.
Clients, if you are ready to improve our understanding of your past, or present, or future, please email us or call.
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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.
Investing involves risk including loss of principal.
No strategy assures success or protects against loss.
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As value investors, we have always treasured the opportunity to buy shares at favorable prices for companies we deem to be durable. For many companies, 10 times the annual earnings per share looks like a bargain to us!
In the recent market turmoil, these kinds of opportunities appeared again. The arithmetic of these situations is interesting: an investment might compound to three times its beginning value over 10 years or so if the company is making annual profits of one-tenth the share price and earnings keep up.
No guarantees, of course. We could be wrong in our judgment, or some problem could befall the company and upset the theory.
But suppose shares are purchased in three such companies. If only one pans out as hoped over the 10 years or so, it may be worth triple the beginning value. If the other two are worth nothing, then the combined value of the three may still hover around the original value, as it was 10 years before.
One could redeem all.
Better yet, a company that delivers steady earnings over 10 years might be valued at 15 or 20 times earnings in the future instead of just 10 times, based on the steady earnings record. That valuation change might produce profits in addition to return of the original investment.
Well-known grocery chains, health companies, and food processors may be a fit for this strategy. We cannot know the future, but we believe all these companies will survive—not just one out of three—with the possibility of real gains.
But evenif only one proves durable, that one may redeem all.
If you are ready to talk strategy as it relates to your goals, please email us or call.
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