Stock Selection
Our fundamental analysis of potential common stock opportunities starts at the industry or company level. We look for value in common stocks. Value may be variously described. We see it in companies with consistently rising earnings or where a new product is leading to vigorous earnings growth. A fundamental change in a company's operating environment or within an industry can create or restore value. Unrecognized assets or exciting management changes may identify value investments. The common thread is a market price consistent with the company's prospects and the level of values in the general market. Our job is to be aware of pivotal change within society and the economy and to seize opportunity on behalf of our clients.
Appropriate diversification among economic sectors and industries, and attention to such qualitative factors as balance sheets are, in our judgment, the sensible way to limit risk in a portfolio. Fixed income holdings account for approximately thirty percent of the assets under supervision, and include government and agency securities as well as corporate and municipal bonds. While the composition of individual fixed income portfolio holdings may differ depending upon tax status or liquidity needs, our overall approach is based upon a common frame of reference. We do not view the fixed income sector as a primary vehicle for appreciation and embrace a largely risk adverse approach. Holdings are structured and managed to provide a stream of income, dampen volatility in portfolio asset value, and provide liquidity.
To the extent the yield curve permits, we prefer a "laddered" maturity structure in order to avoid disruptive changes in the flow of income and to avoid the reinvestment risk resulting from an uneven pattern of maturities. With few exceptions, investments are largely within a ten-year maturity range in order to provide call protection and diminish volatility inherent with longer maturities.
Changes in the maturity structure and composition of the holdings are primarily made against the background of an anticipation of a meaningful change in the trend of interest rates. Forecasting this trend is the key determinant and is based upon an ongoing analysis if inflation expectations, Federal Reserve Policy, and the overall level of economic activity domestically and abroad.
In appropriate accounts, we also seek to take advantage of opportunities arising from spread differentials between industrials, utilities, financials, and US Governments as well as anomalies in maturity and quality rankings. Virtually all of our holdings, domestic and foreign, are investment grade and are highly marketable.
