Our Investment Philosophy


In a nutshell, we are searching for value that has not been recognized by the market. In many cases, this unrecognized value will be revealed by conventional price/earnings, price/cash flow, price/book, or sum-of-the-parts analysis. But we have found that we also must identify the potential catalyst—the event or series of events that should cause other market participants to recognize the stock’s value and to bid its price significantly above current levels.

We have also discovered that undervalued stocks often have other common attributes, and we make these attributes a focus of our search for purchase candidates. Among these attributes are

  • Sustainable competitive advantages via market dominance, business design, intellectual property, quality of assets, or some other not easily replicated characteristic;
  • Honest, capable, long-term oriented, and properly incentivized management with a stake in the company as shareholders themselves;
  • A strong balance sheet with manageable, if any, debt that will not interfere with dividend payments, share repurchases, or the ability to invest in promising opportunities such as accretive acquisitions or internal capital improvements;
  • Cash flows sufficient to fund all internal capital needs and to provide the flexibility to pursue growth opportunities;
  • A growing market and/or market share;
  • Shareholder friendly capital allocation policies such as dividend payments and share buybacks; and
  • A margin of safety to limit the downside in case something goes wrong.

There are exceptions, of course–we occasionally encounter attractive purchase candidates that lack these characteristics. But it is certainly safe to say that the majority of our stocks meet most of the above criteria.


To outperform the stock market, an investor must exploit an advantage he has over other investors.  As set forth by Russell J. Fuller in a 1998 article in the Journal of Pension Plan Investing, the advantage may be informational, analytical, or behavioral.

Informational Advantage

An informational advantage is gained by acquiring information most other investors do not have access to.  Given the army of bright and hardworking analysts searching for the “holy grail” of investing, gaining an informational advantage is not easy.  One of the primary ways we seek an informational advantage is by going where many other investors do not or cannot go.  For instance, because of our relatively small size, we can invest in companies that are not large enough to accommodate the large inflows of cash from most mutual funds or other large investors.  Because these smaller-capitalization companies do not have numerous Wall Street analysts poring over their quarterly results, analyzing their prospects, and disseminating their conclusions to the investing public, it is easier for us to gain an informational advantage.   This advantage increases the possibility of finding hidden gems, and it is one reason that smaller stocks have out-performed the stock market as a whole during most time periods.  We usually have a handful of these small-capitalization companies in our client portfolios.

 Analytical Advantage 

We acquire an analytical advantage by better evaluating the information available to all investors.  Through our years of experience, we have developed many methods to assess the market and potential investment opportunities.  Also, because of the broad background and varied experiences of our firm’s personnel, we are better able to see a company in the context of its industry and sector groups compared to analysts who specialize in a single stock or industry.  A broader perspective often helps us to identify trends that cut across industries or sectors.

Behavioral Advantage

Investors often make common psychological mistakes that result in mispriced securities.  Exploiting these errors gives us a behavioral advantage.  The old adage about “buying low and selling high” certainly offers sound investing advice, but implementing the advice on a consistent basis is very difficult.  In fact, human nature seems to be programmed to do the opposite—to buy high and sell low.  After years of observing investors (and occasionally even ourselves) make this mistake and others, we are often able to identify when the market overreacts or underreacts to certain information.  These reactions often provide us opportunities to buy or sell securities to emotional investors at favorable prices.

Unlike hedge funds and mutual funds whose time horizons may be a week, a month, or a quarter, we prefer to be long-term investors.  As Warren Buffett said, “Our favorite holding period is forever.”  A long holding period allows us to take advantage of “time arbitrage.”  Often a short-term drop in a company’s stock price is due to an earnings miss or other hiccup that does not alter the long-term prospects of the company and becomes an opportunity to buy more shares of the stock at a discounted price, which increases the probability of outperforming the market.  In addition, during these long holding periods, we are able to become very knowledgeable about the company, which helps us identify potential turning points in the company’s operations before others.  Other advantages of holding stocks for the long term include lower transaction costs and greater tax efficiency, both of which bolster total returns.


We sift through a voluminous amount of information from annual reports, newspapers, subscription newsletters, Wall Street analyst research, industry trade periodicals, and online sources.  In this information, we discover stock ideas or trends we can explore more deeply.  We also utilize subscription stock screening programs to identify prospects that possess characteristics shared by stocks that have generated above-average gains in the past.  Finally, we develop investment themes and obtain specific stock ideas through conversations with Wall Street stock analysts and other money managers, and we occasionally get ideas from business people and clients.


Rather than outsourcing the actual investment decisions to a mutual fund company or exchange-traded fund ( ETF), we generally invest our clients’ assets in individual securities.  A client who invests in mutual funds does not know which investments he or she actually owns or why they are owned.  Our clients know what their investments are, and we can, if requested, provide them with the reasons for each position in their portfolios.  We believe this approach increases our clients’ long-term growth opportunities.

Additionally, an index fund or an ETF will many times buy every stock in an index, country, or industry without distinguishing between those stocks that offer superior potential for investment gains and those that do not.  In contrast, we rely on research to try to find the best investment opportunities in any given market or industry.  When ETFs or mutual funds are purchased, the investor effectively owns all of the stocks or bonds in the fund, including those that may not be deemed suitable for current purchase.

Finally, investing in individual securities promotes accountability on our part.  We won’t blame the mutual fund manager for poor performance.  The buck stops here.

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