The Art of Investing How do investors earn above average returns without taking undue risk? By buying undervalued securities. Markets are said to be efficient, but research that undervalued securities offer a lunch” more return at lower risk. “free – Market participants are emotional. When bad news strikes, investors often sell without evaluating the effects of the news. Thus, opportunities are created for value investors, who like to buy low and sell high. Typically, negative news will affect a industry. The 2008-2009 housing bust decimated many tool makers, such as Black & Decker, Snap-On, and Stanley Works. However, these companies remained profitable throughout the recession, and in fact used the time to become more efficient operationally. Yet the stocks were selling at prices that implied that we’d never build another house in the United States. Because their prices were already so low, the of investing in this industry was low as well. When the risk first signs of recovery appeared on the horizon, the entire industry rallied strongly and in fact Black & Decker and Stanley Works decided to merge, propelling their returns even higher. Value investing requires patience. We typically give stocks two years to If after this period, the “work”. stock still does not appear promising, we sell it. Value investing goes through periods of underperforming, like every style. To minimize the risk that clients will experience these periods, most client portfolios will also own some large, blue chip stocks that follow the market averages. All portfolios will be diversified among large and small cap stocks (as directed by each client’s Investment Policy Statement). Typically, clients will own 30 to 50 stocks. Value can be found in all markets, from international securities to bonds and options. We apply our value philosophy to every aspect of portfolio management, seeking securities at reasonable prices in all venues.
The Art of Investing How do investors earn above average returns without taking undue risk? By buying undervalued securities. Markets are said to be efficient, but research that undervalued securities offer a “free lunch” – more return at lower risk. Market participants are emotional. When bad news strikes, investors often sell without evaluating the effects of the news. Thus, opportunities are created for value investors, who like to buy low and sell high. Typically, negative news will affect a industry. The 2008-2009 housing bust decimated many tool makers, such as Black & Decker, Snap-On, and Stanley Works. However, these companies remained profitable throughout the recession, and in fact used the time to become more efficient operationally. Yet the stocks were selling at prices that implied that we’d never build another house in the United States. Because their prices were already so low, the risk of investing in this industry was low as well. When the first signs of recovery appeared on the horizon, the entire industry rallied strongly and in fact Black & Decker and Stanley Works decided to merge, propelling their returns even higher. Value investing requires patience. We typically give stocks two years to “work”. If after this period, the stock still does not appear promising, we sell it. Value investing goes through periods of underperforming, like every style. To minimize the risk that clients will experience these periods, most client portfolios will also own some large, blue chip stocks that follow the market averages. All portfolios will be diversified among large and small cap stocks (as directed by each client’s Investment Policy Statement). Typically, clients will own 30 to 50 stocks. Value can be found in all markets, from international securities to bonds and options. We apply our value philosophy to every aspect of portfolio management, seeking securities at reasonable prices in all venues.
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