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Further info on Balanced Accounts
|| Further info on Fixed Income Accounts
"You should approach buying a stock
as if you were going
to buy the whole company. For me, I must understand
the business, and it must be attractively priced."
Equity-only accounts are for the more aggressive client, or for that portion of a client's assets that they are willing to put at a higher level of risk.
You can expect equity accounts that I manage to generally hold 15-20 stocks, inclusive of large-capitalization, mid-cap and small-cap companies. While many investment firms are specialists, emphasizing a particular discipline, I am a generalist. I do not concentrate in any one industry or sector, and regard myself as an opportunist; that is, if I believe that I can make money in a given issue, I have no constraints because of size, industry, or rating. I look for growth, value, catalysts, changes in a company or a market that might lead to higher prices for a company's securities.
My equity accounts have historically held convertible bonds and convertible preferred stocks. These securities generate cash flow into the account while still offering potential for capital gains. Holding such securities often has the effect of dampening performance during strong bull markets, but conversely, provides some stability in declining markets.
My research is first fundamental, but includes technical aspects as well. By this I mean that my first look at a company is to its balance sheet, growth prospects and relative valuation. But I will also look at chart patterns for clues as to the trend and to find a favorable entry point.
When assessing a stock, I begin by
looking at three factors:
Valuation: the price of a share of the company's stock in relation to its earnings, its balance sheet, and its sales.
Growth: both bottom line (that is, projected growth in per-share earnings) and top line (projected growth in sales); and whether the changes in these figures are the result of internal factors, acquisitions, or items like tax and accounting adjustments.
External factors: especially changes in the company, its products, its market or its strategy. Also included under this heading: industry consolidation; "turn-arounds"; activist investors; new legislation; and market psychology.
Any one of these factors can be enough to cause me to invest in a particular company, but, of course, the more positive items present, the more likely I am to become a shareholder.
In my methods there are no automatic triggers, no "black box" systems, no formulas: I simply try to buy stock in companies that have a bright future. As a rule, almost all of my investments are domestic. I eschew emerging markets and foreign markets in general, preferring to participate in international growth through American companies that do business abroad.
I especially seek out those companies that are changing and that I believe are capable of managing that change. Witness my purchase of Westinghouse in the mid 1990's when that old-line, industrial giant was morphing first into CBS and subsequently into Viacom, and again into the "new" CBS, the broadcast and entertainment powerhouse it is today. Or my purchase of Benchmark Electronics in the early 1990's, a company which has grown not only internally, but also via a few select acquisitions. My initial attraction to Benchmark was due to the industry shift to outsourcing. I continue to own CBS and Benchmark and to add to those positions.
As evidenced by the preceding examples, you can see that I am a patient, long-term holder; it is not uncommon for me to own a stock for a period of five to ten years. As such, "turn-arounds" are also occasionally to be found in my portfolios. My belief is that a good company that falls upon a difficult time will almost always work its way back.
Your equity account may hold a number of "household names", such as Time Warner, Viacom, Disney, Interpublic Group, Intel, Microsoft, and Corning, alongside lesser-known companies, such as Benchmark Electronics, Zimmer Holdings, and VCA-Antech. Do not be surprised to see unfamiliar names, such as Sally Beauty, MWI Veterinary, Teva, and Monro Muffler. It is an eclectic mix, not limited by size or industry.
I often purchase convertibles (see list below). I do this with the knowledge that at a given point in the future I have some assurance of the return of my principal in addition to the interest or dividends that accrue. I am buying a minimum return over a given time period, but with no limitation on the upside. (In some instances I may own both the common stock and the convertible.)
Examples of convertible bonds that I own as of the first quarter of 2010 are:
Wright Medical Group
2.625s'14 at 88, approx. yield to maturity 5%
NASDAQ-OMX 2.5s'13 at 95, approx. yield to maturity 3.9%
mentioned above have been selected
to show the scope of my holdings and the wide range of risk and return available.
Obviously, the higher the rate of return the greater the risk, and some issues
are only appropriate for those clients willing to assume the inherent risk.
You should not construe this as a recommendation in any sense; no recommendation
is being made.
The goal is steady, consistent growth. When the indices (meaning the S&P 500 and Dow Jones) are rising strongly, my equity accounts generally do not match that performance due to these convertible holdings and my overall conservative approach. But when the markets fall, my equity accounts can be expected to outperform. My feeling is that the intelligent investor is looking to preserve and protect his assets while generating a reasonable rate of return. Such investors are more concerned with consistent, prudent, long-term returns and are capable of ignoring the daily fluctuations of the markets. They, like me, also happily shun the current market fads, secure in the knowledge that consistency is superior to flash.
James Pappas and James Pappas Investment Counsel LLC makes no recommendation as to the suitability of these securities for your account. You should not infer that a listing above implies a recommendation of any kind. The securities listed are shown for purposes of illustration only.
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