Your questions answered

What skills set you apart from other managers?

1) I am simply cheap. I have been this way my entire life and “cheapness” is fundamental to being a successful value investor. Buying at low prices relative to intrinsic value holds the key to earning dependably high returns, limiting risk and minimizing losses.

How would you characterize your idea generation process?

There is no substitution for constant reading to immerse myself in the flow of information that eventually results in ideas. SEC public company and manager filings, industry research reports (for the numbers, not investment opinions – this is an important distinction) and publications such as Barron’s are all sources of investment ideas. Fundamentally all investment ideas should have the following criteria:

What is your sell discipline?

We want to sell stocks when they’re fairly valued, but we’ll admit that determining that is as much art as science. We traditionally cut back or fully liquidate a position when fundamentals have deteriorated, a previously identified catalyst has taken place to unlock value or the stock has appreciated at least 20% and has been held for at least year (to minimize the tax effects of selling).

What are your thoughts on technical analysis and price charts?

Technical analysis can be useful from time-to-time as a contributing barometer of a particular security’s investment merit in that it is simply favorable to buy a security lower than higher in price. This is only one, and likely the very last, piece of investment criteria reviewed prior to investment. Historical price movements are important, but not critical, to our investment in that particular security. Additionally, investing solely based on technical analysis usually involves frequent trading

Do you use analyst’s forecasts and sell side research to form opinions on securities?

Yes, we use analysts’ forecasts and sell side research to get the analytical numbers but we form our own opinion from those numbers provided. We never rely on buy or sell lists from analysts and always have healthy skepticism on sell side research forecasts. Analyst’s forecasts are usually optimistic requiring a healthy downward adjustment to ensure a margin of safety.

what is your typical holding period for investments?

Our typical holding period is between 12 and 24 months as that is both how long it usually takes an undervalued investment to be fairly valued by the market. Tax-efficiency is secondary, but very important, in determining investment holding periods.

Are you able to provide custody for low-basis stock? Do you mind if we transfer in-kind to you positions that are low-basis and possibly higher concentration?

Yes, we welcome low-basis securities to be transferred to us. No, we do not mind if these low-basis securities result in higher concentrations in the account.

What don’t you do?

We are not asset allocators or financial planners. We do not sell insurance or sell investment products. We do not represent any particular mutual fund family or have our own proprietary mutual funds. We do no investment banking and do not make money on brokerage fees.

Who has custody of the investments you manage?

Charles Schwab serves as the custodian/ broker of our client assets.

“No investment points are awarded for difficulty or complexity. Simple investment strategies can lead to outstanding returns.”