Equity Discipline

Value Investing

Since the future is unpredictable, it is critical to be prudent in making investment decisions.  Accordingly, our investment philosophy focuses on capital preservation with reasonable, safe returns in both rising and declining markets.  With our conservative approach, we believe that we are able to mitigate risk while helping our clients grow and preserve their wealth.

There are two basic approaches to investing: value and growth.  While either of these investment styles can be profitable if consistently followed, the value approach generally produces current income with less volatile returns. Often, the value approach is "contrarian" — in many instances our selections are the opposite of prevailing conventional wisdom.

As value investors, we buy high-quality stocks when we believe that the following conditions exist:

• the stock price is depressed
• the earnings outlook is somewhat unclear
• the stock is out-of-favor with many investors
• management has identified the problem(s) that caused the stock price to decline
• management is taking appropriate action to correct the problem(s)

After a buy decision is made, we determine and monitor key industry and company-specific metrics and measure the company against our expectations on an ongoing basis.

As important as buying a stock is deciding when to sell or reduce a holding.  Our contrarian approach is as useful in the sell decision as it is in the buy decision.  For example, when the earnings outlook is strong and the price of a stock has risen significantly, we will often sell or reduce our holdings in a stock.  The decision is always substantiated by in-depth research that includes a thorough analysis of a company’s fundamentals, its past operating history, and its cash flows. Also, we are very careful not to generate short-term capital gains for our clients.

We believe, and our performance results over the past fourteen years demonstrate, that our approach to investing works through both strong and weak markets.