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IF Wall Street can't manage their own money, what makes you think they can manage your money?
At Clark Brothers Investments we are different. We judge ourselves by how much money we make for our clients, not by how much money we make for ourselves.
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INVESTMENT PHILOSOPHY
At Clark Brothers Investments we are value investors. Value investing is the most profitable time tested proven investment strategy; nothing else even comes close-not hedge funds, not private equity, not short selling, not market timing, not trading. Virtually all of the best investors in the world are value investors-Warren Buffett to name the most well known, wealthiest, and subsequently, the richest man ever to live. In simple terms, value investing is buying out of favor securities, and waiting till the market recognizes that value.
The reason value investing works better than all other investment philosophies has to do with the correlation between risk and intrinsic value. Value investing doesn't eliminate risk, but it minimizes the elements of risk that investors are able to control (unsystematic risk or company specific risk) while at the same time reducing the elements of risk that investors are unable to control (systematic risk or stock market risk). Reducing the total portfolio risk coupled with the value investing paradigm of buying stocks below their intrinsic value (margin of safety) is the formula that garners superior investment results regardless of what the stock market does. In more simple terms value investing is the difference between buying companies and buying stocks. You buy a company because what the company is worth (intrinsic value) is trading below what the stock market says it is worth (the actual stock price). This difference between a stocks intrinsic value and its listed stock price is commonly referred to as a margin of safety. A specific example can be found with Ford Motor Company. The stock market says Ford is worth $1.00/share, because that is the price Ford trades at on the New York Stock Exchange. As value investors we believe Ford has a much higher intrinsic value than $1.00/share. Since we can buy this company for the listed stock price of $1.00/share, we think it is a good investment, because it is trading below its intrinsic value giving investors an acceptable level of risk, and margin of safety.
At Clark Brothers Investments we also believe in practicing and applying what we preach. Adhering to this pledge alone makes us vastly different than most other investment professionals. We do not use leverage or debt to increase investment results. We do not take on unsubstantiated risk to increase investment results either. Doing so results in what you are seeing right now on Wall Street. Investors losing millions of dollars in presumed risk free investments, and the most storied financial institutions in the country going bankrupt. All from mismanagement of risk, and greed.
At Clark Brothers we never want our clients, or our business, to experience a financial crisis like the one we are witnessing on Wall Street. Therefore, we always consider the risk v. reward ratio for each and every client regardless of what others are saying or doing. For instance, we always diversify and allocate assets according to time tested proven investment studies. These studies indicate that investors simultaneously reduce risk, and maximize returns practicing asset allocation and diversification. These terms are almost synonymous, and therefore go hand in hand when developing a client portfolio. Diversification is simply not putting all your eggs in one basket. Investors should diversify because nobody is right 100% of the time. Specific examples include: Enron, the tech bubble, United Airlines, Lehman Bros., etc. Asset allocation is easy to understand, but much more difficult to apply. Asset Allocation means diversifying your portfolio among different asset classes. Specifically, large cap stocks, mid cap stocks, small cap stocks, real estate (including your home and rental property), foreign & international securities, bonds, cash, exchange traded funds, and individual equities. The reason investors should properly allocate assets is to minimize risk, and maximize returns. Studies show that investors fair better when they properly allocate their assets, because it is difficult (in our opinion impossible) to time in and out of sectors, asset classes, and the stock market in general. When investors try to time in and out of the market, asset classes, sectors, and even equities what they are really doing in most cases is cementing in loses, and/or performance chasing. The reason is investors are buying high (i.e. buying into investments that are doing well now, but will likely be tomorrows losers), and selling low (selling out of sectors that are doing poorly now, but will likely be tomorrows winners). Obviously, this is counterproductive, time consuming, stressful, taxing (literally), and in the end does nothing to increase investment results or lower risk. Asset allocation ensures you are able to take full advantage of each and every asset class when that particular asset class outperforms the overall market/other asset classes. And, it also ensures that when certain asset classes decline your entire portfolio isn't affected as much (risk management). The embedded chart will convince you beyond any reasonable doubt how difficult (again, in our opinion impossible) it is to predict what asset classes will be the best performing year in, year out. View Chart
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As our Investment Philosophy implies, "ONLY THE BEST", we only buy the best mutual funds, exchange traded funds (ETF), and stocks available on the market. We use asset allocation models to break up client portfolios into large cap stocks, mid cap stocks, small cap stocks, real estate (including your home and rental property), foreign & international securities, bonds, cash, and individual equities. When adding new money to the market we look at over 15 sectors to determine which sectors are the best asset classes at that time to invest in and/or add new money to. Whether evaluating a mutual fund, ETF, or stock holding we invest with "ONLY THE BEST" fund managers, portfolio managers, or CEO's respectively.
For clients wishing to own equities further research and analysis is done to evaluate the best opportunities. Below you will find what criteria we use to BUY and SELL equities. Equities are treated as a separate asset class, and are traded much more frequently. The reason for this is to maximize the total portfolio return, and at the same time reduce the overall portfolio risk by capitalizing on market volatility.
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BUY
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- INDEX. DOW. NASDAQ. S & P 500. Russell 2000. International markets. If large cap growth stocks are out of favor, then most large cap growth stocks are too. Specific example, look at the Dow (large Industrial stock index) over the last 7 years v. the Russell 2000 (small cap stock index).
- Sector. We look at over 15 different sectors from semiconductors to autos. Again, if a sector like technology is out of favor, then most tech stocks will be as well. Specific example, compare the QQQ (100 largest tech stocks) v. the OXH (oil services index).
- Management. People run companies. Management effectiveness could probably be your only investment parameter, and you would do just fine. Specific examples, Steve Jobs taking over Apple Computer (NAS: AAPL). Mark Hurd taking over Hewlett-Packard (NYSE: HPQ).
- Products. Better products always win. Specific example, look at Toyota v. Ford or Apple computers iPod. Along with the actual product we look at product alliances. Specific examples can be found with DELL partnering with EMC, Nvidia, and F5 Networks.
- Financials. We only want to buy solid A+ companies. Specific examples of not doing this are: Enron, Sunbeam, WorldCom, and United Airlines.
- Impetus. There has to be an impetus of change to move a stock price. Specific examples include a new CEO, a new product/product alliance, or competitive pressures.
- Contrarian. Contrarian is a trait of most value investors. However, we do not want to be too contrarian. That is the difference between being wrong or early. A specific example can be found looking at the NASDAQ after the tech bubble in 2000-present.
- Insider and Institutional trading. We look at 13 D, 13 G, 13 F, and Form 4 filings (Insiders) to track informed investors actions. Additionally, Institutional trading accounts for some 95% of volume on the exchanges.
- Competition. Know thy enemy. Specific example, look at AMD v. INTC. AMD may have a better product and/or management. However, INTC is socking it to them on pricing. AMD stock has gone from 42+ to 12+ in 6 months v. INTC stock holding in the low 20 range.
- Technicals. Most people do not use technical analysis, because they over use the principles or only use technical analysis. We use 10 very simple distinctly identifiable patterns to improve our buy and sell recommendations. We never let technical analysis override fundamental analysis.
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SELL
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- Company fundamentals deteriorate. This is usually caused by mismanagement, or by factors beyond the control of the company like rising fuel costs for the airlines. Fundamental deterioration is difficult to detect, but essential to preserve capital, and limit further loses.
- Timeframe. Doubling your money in 6 months v. 5 years is different. There is nothing wrong with locking in above average time sensitive real returns in order to increase your total portfolio return for the year.
- Taxable v. nontaxable account. True, taxes shouldn't drive your investment decisions, but certainly they should be a part of your decision making process. This is especially true for short-term capital gains taxes for individual investors in the highest marginal tax bracket.
- Set Stop-Limits. Selling a stock is the most difficult investment decision to get right. So, we use tools to increase the odds of selling a stock to secure profits and limit downside.
- Technicals. "Sell what you see not what you think." That is a great quote to remember. Too many times people try to outthink the stock market.
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Investment Advisory Firm specializing in Financial Planning & Money Management
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