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Investment Philosophy and Portfolio Construction
Our primary investment goal is long-term appreciation of your capital; however we recognize the importance of dividends as an integral part of the total return from the portfolio. Therefore, a significant number of the companies we own will pay a dividend. After-tax returns are what matter. As such, we are mindful of the tax implications of our investment decisions.
A typical portfolio includes: 25-35 stocks, 1-3 no-load funds, and the number of individual bonds varies with portfolio size.
Exposure to non-U.S. markets will be accessed primarily through the use of mutual funds, exchange traded funds or separate account managers. Fixed income investments can include individual bonds, preferred stocks, bond funds, and or exchange traded funds depending on the size of the portfolio. Portfolios exceeding $1 million will hold more individual bonds.
Buy and Sell Discipline
We focus on companies when they are out of favor, i.e., market conditions are not favorable or the financial community does not properly perceive the true worth of such companies. We have a proprietary method for determining the value of the companies we buy. The process focuses on fundamental and technical factors with an emphasis on cash flow. We would like to own a company for 3 years, but we are open to owning it for 1 month or 10 years. Since we focus on out of favor companies, we are patient and allow our ideas to work.
We will review a company for sale when it hits a price target, exceeds 5%-7% of the portfolio, or we were wrong about its prospects. We recognize that being wrong from time to time is an inherent cost of investing. The important thing is to recognize such mistakes as soon as possible, understand their causes, and learn from them.
Reporting
Each month TD Ameritrade will send you a monthly statement detailing all transactions in your account and report your holdings. You will also have web access to your accounts.
Within the first 2 weeks following the end of each calendar quarter we will send you a custom report with the investment return of each account individually and in aggregate. The report will show the performance of your account versus an appropriate benchmark and the total growth rate of the portfolio. Also, included will be a detailed breakdown of the portfolio including realized and unrealized gains and losses, yield, weighting, and allocation.
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