Our objective is to continuously refine our processes, in our attempt to produce consistent risk-adjusted results. Our first step is to be proactive as a matter of principle. We know that emotions drive the actions of those who are functioning defensively. By comparison, we know that experience, knowledge and professional values drive the actions of those who are functioning pro actively.
The next step, because we believe perfection is illusive in investment management, is to make quality security selections through the never ending “process of elimination.” The result of these steps is the rejection of investment styles that have revealed fundamental flaws. Our intention therefore, is to seek consistency for our investors, in an uncertain world.
All approaches have strengths and shortcomings. It is the elimination of those with the most significant shortcomings, which brings us pro actively to the quality. For example, many investors subscribe to the “value” approach. We reject that mainstream style, as it too closely resembles the procedure of buying inferior securities, justified by lower prices. We also reject the approaches of many “growth” investors, as many of those styles simply justify purchase prices that are neither rational nor attractive. And we reject the style of many “contrarians” as it is often the opposite process of following the herd, and may also be a sheepish substitution for legitimate independent thinking.
One by one, we have attempted to eliminate common approaches, until we could no further. The result and the best way to describe the Channer Investment Management (still-standing), winner is with the acronym “E.G.A.R.P.”™ It is the logical extension of the “growth at a reasonable price” ideology. The E.G.A.R.P.™ model is “Exceptional Growth at a Rational Price.” Exceptional does not mean rocket ship trajectories. It means the best one percent of all companies that have produced long periods of sustained sequential growth. There is a reason that we do not seek rocket ship results. It’s our proactive determination to avoid blowups. Our methodology strongly acknowledges that the market ultimately pays a premium for companies with reported earnings that are at higher rates than their competitors. And, we believe a rational price requirement is superior and distinctive to a reasonable price requirement, because it requires objective analysis rather than subjective opinion.
Perhaps in defiance of all common sense, ninety-nine percent of all companies covered have been worthy of investment, according to the ratings offered by Wall Street’s brokerage analysts. Historically, they have only rated about one percent of the stocks they cover a “sell.” While they have shown some signs of improvement recently, we operate on the premise that they have been 180 degrees incorrect. Rather, we build portfolios by first eliminating the ninety-nine percent that we believe is least worthy of our clients’ principal. Only one percent remains under our serious consideration (about 50 out of 5000 companies), and all of our subsequent selection efforts are directed toward these “quality” securities. The other ninety-nine percent are eliminated, because by definition they have revealed themselves to be a poor allocation of our time, and of our analytical resources. We say, “Let Wall Street have them.”
Professional analysis allow us to “graphically display”, and therefore immediately identify those (few) companies whose ten-year financial character has been better than the other ninety-nine percent. We call them “Perfect Picture” companies, and we invite investors to arrange for a visual presentation. For those who do, investing may never again look the same.
Further, when investors see stocks they presently own through this methodology, they are frequently shocked at how inferior their previously purchased stocks (that had “great stories”), look to them.
Because we are only interested in the Quality Companies, the latter steps of our processes require analysis of how a company achieved its results, the character of its management, and consideration of many key financial ratios and measurements. Finally, we only buy at rational entry points as determined by complex price models, we carefully diversify, we rebalance to reduce success-produced risk, and we are long term in our commitment; we stay the course.
History has taught us that many investors fail to stay the course, only to find that they unintentionally bought high, and sold low. Accordingly, we never stop assessing our view of the investment world. There are many factors that when understood accurately, provide for vision and for long term confidence. These factors are vital to the performance of a portfolio, because they are vital to the investor’s ability to stay on course. These factors include careful investigations of demographics, productivity, Fed policies, competitive and free trade forces, inflation drivers, regulation, taxation, innovation and scientific discovery. We take all these big picture variables seriously, and they are specifically applied to our portfolio management process. They are also carefully examined when we consult with our clients, for our clients are the owners of the portfolios we manage, and the strength of their vision is an important part of making their financial expectations a reality.
This brief overview of the Channer Investment Management approach to portfolio management is highly abbreviated, and should not be construed otherwise. For a full presentation and explanation of our portfolio management disciplines, contact your investment advisor representative. We want you to see the difference.