|
|
Our stock selection process, developed through our Portfolio Managers’ collective 155 years in the industry, is designed to produce return and risk portfolio characteristics that clients may find attractive. Portfolio companies demonstrate fundamental characteristics that are consistent with the firm’s objectives. The following phases outline the important steps of Red Granite’s investment discipline beginning with our focus on a research universe of high-quality companies and ending with a well- diversified portfolio of financially-solid and attractively-priced businesses. The Investment Committee consists of all Portfolio Managers and Research Analysts working in an open environment to enhance communication. Together, the team establishes the research universe and identifies portfolio candidates. Portfolio Managers vote on purchase and sale decisions with a simple majority needed for changes.
Research Universe
This closely followed company list is established by the Investment Committee and reviewed monthly for changes. We perform regular screening of our fundamental database to ensure that high-quality growth companies are not being overlooked. Quality characteristics include proven management, solid balance sheets, competitive advantages, and frequently higher returns. As focused, long-term investors, we follow fewer companies. Consequently, we develop our thesis around an understanding of business models and growth drivers.
Portfolio Candidates
After in-depth analysis, these industry-leading companies generate persistent, above average earnings growth and are deemed to be of sufficient quality/liquidity for broad use in client accounts. They may, or may not, be timely due to valuation concerns, industry trends, macroeconomic influences, and/or current portfolio composition.
Client Account
Accounts contain a carefully-chosen subset of timely, attractively valued growth companies expected to outperform on a long-term basis. We are focused as much on principal preservation as opportunity. Thus, at the time of purchase, a new investment should have at least three-to-one upside potential versus downside risk. Continually monitored for changes in fundamentals and relative price/earnings valuations, these investment positions are regularly measured against possible substitutes from the “candidates” list.
Self Discipline
Based on fundamentals and valuation, our sell discipline is a two-pronged approach:
 |
As long as the underlying growth and quality traits remain intact, a position will likely be trimmed when a stock appears to be fully priced or through appreciation the position size has become too large: |
|
or |
|
When a company breaks our investment thesis or appears to be experiencing a "life-changing" event (i.e. loss of management), deteriorating competitive position, regulatory incursion, poor business combination/acquisition. or extreme over-valuation, the full position will likely be sold. |
The Corporate Life Cycle
Our philosophy and process reject companies in their infancy, when risk might be highest. Rather, we prefer to own businesses in their more enduring "growth" and early "prime" stages when earnings and returns are ample, yet risk is reduced. The graphic above shows the corporate life cycle for companies with real competitive advantages. We believe that the "corporate risk cycle" moves in the opposite direction, with risk falling in the early stages of maturity (growth to prime) and then rising as the enterprise declines. While this graph may accurately depict an organization with somewhat limited possibilities, there are countless examples of well-managed companies reinventing themselves, so to speak, in a process that defers the "decline" phase for a very long time. Ideally, we strive to become long-term investors in these types of companies where skilled corporate decision-making can extend competitive advantages for many years.
|
|
|
|
|
|
|
|