Overview

In our separately managed equity accounts, clients own a portfolio of securities. For these accounts we are able to customize each portfolio based on individual needs such as equity exposure levels, legacy positions, specific investment restrictions, income needs, etc. that may not be met by a mutual fund.

Philosophy

We employ a risk-averse investment strategy predicated on the belief that strong long-term investment results are best achieved through a compounding of reasonable gains and the avoidance of major losses. We, therefore, consciously strive to limit downside exposure as much as to generate upside returns.

We focus on out-of-favor, undervalued situations with low P/E, P/B and P/FCF ratios and strong or rapidly improving cash flow dynamics. We seek to avoid fads and speculatively priced stocks, where the risk of mistakes is high.

We continually search for under-researched, growth situations that can be purchased for modest multiples. As such companies gain recognition and are accorded multiples more in line with their growth rates, we may become sellers. We also tend to focus on asset rich companies with improving earning prospects. In short we often follow the old saying, “Buy assets, sell earnings.” This tends to reduce the risk of earnings disappointments.

Underlying everything we do is an intense focus on cash flow, especially a company’s ability to generate free cash flow after all expenses and capital spending. Cash flow is more real than reported earnings, which are subject to accounting manipulation. Companies that generate strong free cash flow are able to repay debt, repurchase shares, and grow through acquisitions or reinvestment in their businesses. They are also attractive acquisition targets for both other companies and financial buyers. Because of these characteristics, companies with rising free cash flow are often better able to grow, regardless of stock market conditions and, at the same time, may offer downside protection during periods of market weakness.

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