INSTITUTIONAL INVESTMENT STRATEGIES
A CLIENT CENTRIC FOCUS
“Our mission is to deliver advantaged investment results over a full market cycle for clients. Our strategies, culture and business organization fully support that mission.”
– Michael Anderson,
Chief Investment Officer
“Everybody’s got a different circle of competence. The important thing is not how big the circle is. The important thing is staying inside the circle.”
–Warren Buffet
Intrinsic Value Equity Strategy
OBJECTIVES
Compounding Returns by possessing proper temperament – a set of behaviors offsetting natural emotions – which includes;
Long Term Thinking
Expecting Price Volatility
Rational Thought Processes and Decision Making
Independent thinking with orientation towards contrarian analysis
TIME HORIZON
Best for investors with greater than 5 years investment horizon
PRIMARY RISK
Permanent capital loss
RETURN EXPECTATIONS
Inflation + 3-5% and exceeding Russell 1000 Value over full market cycle which generally runs 5-10 years
ALPHA GENERATION FROM
Good asset selection at good prices
Good portfolio positioning between defensive and aggressive
Skill – the ability to make quality long term decisions with a repeatable and intellectual process
HOLDINGS
Core at 20 – 30 holdings
BENCHMARK
Russell 1000 Value
High Conviction Equity Strategy
OBJECTIVES
Compounding Returns by possessing proper temperament – a set of behaviors offsetting natural emotions – which includes;
Long Term Thinking
Expecting Price Volatility
Rational Thought Processes and Decision Making
Independent thinking with orientation towards contrarian analysis
TIME HORIZON
Best for investors with greater than 5 years investment horizon
PRIMARY RISK
Permanent capital loss
RETURN EXPECTATIONS
Inflation + 3-5% and exceeding Russell 1000 Value over full market cycle which generally runs 5-10 years
ALPHA GENERATION FROM
Good asset selection at good prices
Good portfolio positioning between defensive and aggressive
Skill – the ability to make quality long term decisions with a repeatable and intellectual process
HOLDINGS
Core at 10–15 core holdings
BENCHMARK
Russell 1000 Value
Investment Philosophy: Intrinsic Value
A PROVEN APPROACH
- Market prices – as caused by the collective emotions of the crowd (such as fear and greed) – create inefficiencies leading to attractive opportunities for the long-term investor
- Prices periodically fluctuate above and below their long-term intrinsic valuation (the net present value of discounted cashflow) which occasionally creates advantaged buying and selling opportunities
- Proprietary analysis uncovers opportunities to capitalize
Risk management involves a “margin of safety”, stress testing, and avoiding poorly-performing businesses and industries - Discipline, patience and confidence in long-term expectations offers a higher probability of a successful outcome (i.e., alpha generation)
“The essence of investment management is the management of risks, not the management of returns.”
–Ben Graham
STEP
1
Industry
Analysis
INDUSTRY ECONOMICS
• Long-term expectations
• Competitive position
• Barriers to entry, substitution
• Degree of rivalry/intensity within industry:
• Power of buyers/sellers
• Economic benefits accrue to owners
STEP
2
Security
Analysis
BUSINESS, PEOPLE AND PRICE
• Competitive advantages and their sustainability
• Competitive advantages and their sustainability
• Owners earnings
• Returns on capital
• Capital structure and leverage profile
• Managment team:
⁃ Operational skill
⁃ Capital allocation
• Assessing all securities of company:
⁃ Equity
⁃ Debt
STEP
3
Risk
Analysis
MARGIN OF SAFETY RISKS
• Margin of Safety
• Industry Risks:
• Company-Specific Risks:
⁃ Leverage risks
⁃ Business decay risk
⁃ Capital allocation risk
⁃ Volume risk
⁃ Stress testing
STEP
4
Insight
IDENTIFY GREATNESS
• Great business
• Great management team
• Available at great price
Alternative:
• “OUCH” Stocks
⁃ Overlooked
⁃ Underfollowed
⁃ Cheap
⁃ Hated
“We have two classes of forecasters: Those who don’t know – and those who don’t know they don’t know.”
–John Kenneth Galbraith
Translating HLCM’s Research Insights Into Alpha
1
Research
Prioritization
“Insight List” 400 Companies
“GREAT BUSINESESS”
FOR THE LONG-TERM
• Sustainable results
• Watching patiently for price while evaluating change in industry or business=
“OUCH” STOCKS: MEDIUM TERM
• Underfollowed
• Cheap
• Hated
2
Fundamental
Research
100stock In-Depth
INDEPENDENT RESEARCH CONCLUSION
- Intrinsic value analysis
- Management analysis
- Market cycle horizon
- Margin of safety
- Time arbitrage
3
Portfolio
Construction
-25 stocks
DIFFERENTIATED INSIGHTS
• Opportunity cost assessment
• Active sector weight positions
⁃ Best ideas
⁃ Low probability of risk (permanent loss of capital)
⁃ Grow per share basis over a full market cycle
⁃ Industry diversification
• Self discipline
“It’s not supposed to be easy. Anyone who finds it easy is stupid.”
–Charlie Munger
Income Strategies and Balanced Portfolios
INCOME INVESTING
- Income Advantaged Strategy: Objective returns at least 1.5% above U.S. Treasury bonds
- Inflation Protected Strategy: Objective is returns exceeding inflation
BALANCED
- Customized blends of stocks, bonds
- Diversification benefits derived from our research on asset classes with low correlation to one another
Analysis + Insight + Managed Risk = Long Term Success
CLIENT OBJECTIVES
- High active share vs. benchmark index
- Disciplined research process
- Repeatability of decision-making
- Transparency
HLCM APPROACH
- Proprietary analysis
- Leverage PM’s insight and experience
- Managed risk via “margin of safety” approach
- Focus on outcomes
- Team structured for accountability
CLIENT OBJECTIVES
- High active share vs. benchmark index
- Disciplined research process
- Repeatability of decision-making
- Transparency
HLCM APPROACH
- Proprietary analysis
- Leverage PM’s insight and experience
- Managed risk via “margin of safety” approach
- Focus on outcomes
- Team structured for accountability
Lets start a conversation.
We’d be happy to schedule a free consultation with you to discuss your portfolio objectives.
25 1st Ave NW
Watertown
South Dakota, 57201
(605) 878-0897
info@hi-linecapital.com
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