Our investment philosophy is built on four central beliefs which drive our approach to managing Large Cap Value portfolios.
Focus on high or rising earning power. Since 1985, the heart of our equity investment approach has centered around a company's potential to improve its value, or earning power. We define earning power as a company’s ability to generate cash to either reinvest or distribute to shareholders, and believe it is best represented by return on invested capital. We believe that identifying long-term developments that influence the factors that drive return on capital is the key to selecting investments that will outperform in the large cap space.
Capitalize on low expectations. While we believe the domestic equity markets are efficient in the long-run, we believe temporal inefficiencies do exist and are reflected in low stock prices relative to earning power. By viewing profits, dividends, cash flows, and assets in the context of valuation measures we believe these inefficiencies can be exploited.
Diversify for risk management. By taking a position in a company, we attempt to gain the benefits of positive changes within its industry as a whole, as well as developments specific to that firm. Through this strategy, we are able to increase the likelihood of good returns in most market climates. Our objective is to ensure that portfolios are neither concentrated nor index-like, but always well-diversified.
Manage consistently with a long-term view. We believe that executing sound strategies with consistent application is the key to successful value investing. Furthermore, we believe that repeatable success can only be achieved with a long-term perspective. Accordingly, we approach portfolios as investors, not traders. We make purchases with the intent of holding stocks for at least a business cycle -- a time period long enough to achieve improved return on capital/equity or better market valuation.