For clients who are near or at the point of requiring cash flows from their investment portfolios, the goal is to maintain portfolio stability while generating meaningful cash flows. Fixed income instruments tend to serve this purpose well. For clients with a longer term investment horizon, we generally favor a more substantial equity weighting in their portfolios, for the purpose of enhancing longer term returns.
Our approach to selecting fixed income securities takes into account our view of inflation in the short and long term. We also compare rates across various categories of fixed income instruments in order to seek out opportunities that provide enhanced yields (returns) without incurring undue risks.
Our equity investment philosophy and approach to analyzing and selecting companies for investment serve as criteria in evaluating investment opportunities. Where we identify a company with a strong combination of the following characteristics, our approach is to buy and hold for the long term.
We are drawn to companies that are in industries with a favorable long-term growth profile. Conversely, we avoid industries that are in structural decline. We seek out companies with a strong franchise value; companies with attractive and scarce assets that create powerful barriers against replication by competitors. Examples of these include a strong brand, a powerful and leveragable business model, a sticky customer base and a well-placed market position. Companies possessing these attributes have the potential to generate sustainable, superior returns on capital.
We like companies that are run by talented, driven and disciplined management teams, whose interests are strictly aligned with shareholders. We particularly favour management teams that are strong in capital allocation and product innovation. We prefer owning companies that are attractively or reasonably valued. Our valuation framework for companies is based upon the discounted cash flow model. This valuation methodology allows us to quantify our qualitative assessment of a company's growth and profitability potential over the long term.
We also seek out investment opportunities with companies that are priced well below our assessment of their longer term worth. Even in these cases, we avoid companies in secularly declining industries, and focus on those with strong franchise value characteristics.
See Investment Plan
