Investment Approach
Our investment approach is based on managing risk through sector diversification and on thorough bottom-up research of security selections. We closely monitor the macro-economic environment, to help fine tune each client's asset allocation.
The steps we take to security selection are idea screening, analysis, the purchase decision and ultimately the sell discipline.
Idea Screening
A powerful stock screener that we use, the MSN Money Deluxe Screener, allows the user to screen securities on any metric imaginable. We screen for out-of-favour names, stocks that have suffered a price decline and have a lower P/E and higher dividend yield than the overall market. Other screens we use identify undervalued companies on a fundamental basis and uncover stocks with strong dividend growth.
In addition to software-based screening techniques we look for companies that are participating in a major business theme such as growth of the middle-class consumer in China or the explosion of social networking via the Internet.
Analysis
Once an idea has surfaced we analyze the company by utilizing non-brokerage research sources such as Valueline, S&P Stock Reports, Insider Trading reports, quarterly conference calls with management and, for lesser known companies, company visits.
Purchase Decision
After completing the analysis, we may find that it is still not be the right time to buy. We use basic technical analysis to help determine a purchase entry point. Our view is that it is better to let someone else find the price bottom and to observe some price recovery before we buy.
Sell Discipline
It is easy to become too focused on "what should we buy?". The selling discipline is more difficult than the purchase decision so we regularly ask the question, "what should we sell?".
Sell actions are assessed and may be taken when:
- a share price has speculatively reached full value (i.e. all margin of safety has disappeared).
- a fundamental or adverse change occurs in the company.
- a better replacement opportunity is found.
For fixed income, our approach is to buy a ladder of short-term, high-quality corporate or government bonds, maturing in the three to seven year timeframe.
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