How much time are you willing to commit to your investment strategy? Less than 30-days like most ‘market-neutral’ hedge funds? 1-day, like most quantitative or algorithmic trading strategies? We ask those of you who work for companies, how much can you really start and finish in even 1-quarter, i.e. 90-days? Can you hire, train, field, bill, and get paid with a new salesperson in 90-days? Does the R&D process from white paper to cleared accounts receivable happen in 90-days? Can you plan, permit, build, deliver and ramp-up a new factory in 90-days? Of course not! Why then has wall street fallen into such a short-term obsession with quarterly earnings, or even investment strategies that have time frames of 30-days, or 1-day? Do you want to build your investing plans built on a short-term or long-term outlook?
To create investment value, we believe one must look past the short-term trading noise that dominates today’s stock market. Having a “vision” on what a company can accomplish over a 2-3 year time frame, what we call, “the ability to grow”, is defined by identifying how companies can pursue and successfully execute growth strategies that create value over time. A longer-term investment horizon can help overcome poor emotional trading decisions based on market volatility, that is often exacerbated by broker/dealers looking to generate stock buys and sells for commissions, media outlets sensationalizing reporting for viewership/readership or even fear-of-missing-out trades that chase stock charts. We believe the best investing decisions come from a long-term focus, both on a single-security level, and with a comprehensive wealth management plan.
Building investing conviction through active research, in our view, can produce an investment edge. Through speaking with company management, listening to conference calls, reading annual reports, and reviewing presentations, we gain an understanding of how a company plans to grow. From there, we adopt a “how is this wrong” investment thesis, from both a qualitative and quantitative perspective. We ask, can the company execute its strategy in light of competitive challenges, and do they have the balance sheet strength and the cash flow profile to deliver these goals, even during bumpy and unexpected times, such as the Covid crisis? The more we can not prove our thesis wrong, the stronger investment conviction we are able to build, and the more meaningless short-term volatility becomes.
Our willingness to wait 2-3 years for investment strategies to fully develop seeks to identify and prosper from companies that move from good to great in their corporate strategy and business results. This time frame aims to capture the value created by the positive improvements of a company executing on its strategic plans, versus just trying to arbitrage a market trading multiple or a volatility blip that is irrelevant in the long run. Moreover, this longer-term view allows us to take advantage of overly emotional and/or pessimistic short-term views that drive down the value of a stock in an emotional move, by accumulating shares on low expectations. Buy low sell high. We think it works for emotions and expectations too, especially for investors who are willing to have vision.
This material is for informational purposes only and is not a recommendation or advice. Investments and strategies mentioned are not suitable for all investors. Opinions are based on current market conditions and are subject to change. No one can predict or project performance, and forward-looking statements are not guarantees. Past performance is not indicative of future results. Investing involves risk, including the loss of principal.