Concentrated Equity Strategies

The other part of our approach to equity investing involves the use of "concentrated equity managers".

We believe that a common theme among many of the most successful equity managers is this: they concentrate their holdings in a small number of stocks (typically 25 or less). These "concentrated managers" are typically not suited for the mass-customized world of Wall Street. They do not split their attention in too many directions. And they approach portfolio management as a quest to invest in the best-managed businesses. The fact that shares of ownership in these businesses can be bought or sold on the open market (i.e. the stock market) from 9:30AM to 4:00PM most days is an added convenience, but its not especially important. These firms are all about finding entities they can own a piece of, hopefully for a long time. This way of investing used to be more popular than it is today. You might say that less is more in this case.

These money managers are more concerned with knowing the ins and outs of the businesses they own than hanging on every earnings announcement or Fed move. And if the idea of buying shares of stock for the purpose of owning a piece of the future success of a business reminds you of investing's good old days, there's a reason: it's a good strategy.

There is certainly more potential for volatility here, but the rest of your portfolio is structured to counter that. We also think that one or two well-chosen concentrated portfolios will stand up well in the long run versus aggressive portfolio strategies and certainly against the "usual suspects" of the money management business as discussed earlier. As an added bonus, concentrated managers tend to exhibit low correlation to the broad stock market, which means that there can be times where stocks in general are struggling, but these firms still flourish.

By taking this approach, we focus the "risk" versus the market toward managers whose styles may provide an opportunity to outperform over long periods of time.

Click here to see a report on this strategy (coming soon!)