Our Approach to Investing

We primarily use individual stocks and bonds and mutual funds for our clients' accounts. But we will use other investments if we feel there is value there.


Our approach with common stocks is based on the teachings of Ben Graham (who was Warren Buffett's teacher) as well as other great investors. We look for securities selling at a discount to their intrinsic value. Being disciplined and only purchasing stocks when they have a significant margin of safety reduces risk and enhances long-term returns. This concept of buying only at a discount to intrinsic value applies to other investments as well.

We use funds in a couple different ways. For one, if a client needs exposure to certain sectors, we will use funds instead of individual securities. This can make sense if we need an allocation to international or the small cap area for instance. Second, we use funds if they have stellar long-term returns and we feel they can add value. We look at how managers have performed in certain markets. When we find a great manager who is in a period of underperformance, this might be an opportunity to add value to our clients. We might over allocate to this manager to enhance returns.


To illustrate my process in investing, I've added this page to talk a little about how we decide to purchase a particular investment.


Our investment process is based on finding value. We scour trade publications and several very successful newsletters to get ideas as well as run screens based on certain criteria. This reduces the investment universe down to a manageable number. At this point we spend a lot of time looking at the financial statements to get a feel for the condition of the company. We use these statements and other data to come up with an intrinsic value for the stock. Intrinsic value is the true value or assessment of what level the company should be trading at. Intrinsic value is not exact. It is a range based on very conservative estimates of revenues, margins and other financial information. Once we come up with an intrinsic value, we will purchase the stock if it is selling at a 30% - 50% discount to our intrinsic value. Although a much larger discount is preferred, if the stock is financially strong we will accept a smaller discount. Buying stocks at a discount to intrinsic value give us a margin of safety against potential loss. discipline and analytical skills are needed. We also look at qualitative factors such as are insiders buying the stock, does management have a good track record, do they own stock themselves, which will give them an incentive to perform.


Value stocks can be found in many different ways. When Benjamin Graham started, it was as easy as looking at the balance sheet taking

cash - all liabilities = X
stock outstanding


If the stock was selling for less than X, he would buy it.


Effectively he was buying stocks for less than the net cash-on-hand and getting the company for free. In this day and age, these situations don't occur very often. (Although in late 2003 we found several companies selling for less than cash-on-hand.) So other valuation criteria may be used. For instance, are there assets on the balance sheet that are undervalued, such as real estate or a minority interest in another entity? Maybe the company resides in a beaten up sector of the economy where stock value are temporarily depressed. We love companies who have a wide competitive advantage in their industry.


In summation, since 1987 Value Investing has been my hobby and one of my passions. It was only in 2003 that I became an RIA and was able to put into practice the disciplines and the skills I have been honing since then.


Click here to read about our "Detailed Approach to Investing"


Rancho Santana Nicaragua


The guest house looking out over the Pacific at Rancho Santana Nicaragua. 


We offer asset management services and comprehensive financial planning, as well as ongoing tax consulting. We also provide comprehensive estate planning services including trust planning, transfer issues, and charitable giving strategies.