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Our Investment Approach 

Active Investing: Pro-actively manage your money

  • Individual stock selection is the primary driver of long-term performance results.

  • Fundamentally driven, bottom-up investment process, and rigorous fundamental research.

  • We favor stocks that have specific catalysts such as solid or improving business outlook, fair or undervalued prices, higher dividend yield and dividend growth, and turnaround situations. In addition, the equity portion of the portfolios seeks investment that we believe can double or triple in price within a 2/3-year timeframe.

  • Incorporate but technical and fundamental factors.

  • Upside and downside review prices are established for all holdings at the time of purchase and are constantly monitored. We understand that no-one can time the market and sometimes it can take time for “Value” to be realized by the market.

  • Controlling risk: Happens through superior stock selection, hedging, and stop losses, with some diversification.

Some Diversification

  • The common practice of wide diversification is often promoted by self-serving industries that provide products that may break up your investments into very small pieces but don’t actually provide much protection or improve your results. Think of it this way….if your financial advisor believes in broad diversification it is much easier on them. They outsource the management of your accounts so that they can free up their time to focus on gaining new clients (more revenue for them).

  • Diversification often leads to diluted and mediocre investing, not quality investing. Despite this mainstream approach it is not smarter or safer to own little pieces of everything than it is to own fewer pieces of high quality, durable, consistently profitable, and consistently growing businesses. We believe it is misleading to think you’re safer or better off by embracing a basket of mediocrity than a smaller basket of excellence.

  • Over-Diversification can lead to inferior investment vehicles: research has proven most money managers underperform the stock market as a whole because of the many structural disadvantages, including short term performance pressure, career risk, trading versus investing mindset, too many portfolio holdings, by having too much money to competently manage, and lastly the poor emotional control of retail investors.

  • The Problems with Traditional Asset Allocation and Modern Portfolio Theory are simple… (The 60% stock/40% bond allocation). Investors are neither rational nor risk-averse. Behavioral economics shows that market participants react differently and use different processes, sometimes wildly irrational, in determining investment decisions. This is the reason behind the creation and explosion of market bubbles.  People have different perceptions of value.  Second, the traditional asset allocation approach fails to take market cycles into consideration.

  • Problems with Passive investing (Indexing):  besides settling for mediocrity, passive investors believe that market information is efficiently priced into stocks. While we utilize some index funds to achieve some diversification, Equistar believes that investors can benefit from windows of inefficiency if they have the right manager and right product. The market may ultimately be efficient, but it sometimes takes a while for significant information to be priced into stocks because it is not yet generally known or noticed.  That is where we step in!

  • Diversification doesn’t actually provide that much protection-If you own 1 company and it blows up, you’re screwed. If you own 100 companies and 1 blows up, you barely even notice. But what happens when the entire economy blows up and you own 10 high-quality companies and 90 mediocre ones? The 10 high-quality businesses will eventually come back. But how sure can you be about the other 90?

Beware of the conventional wisdom of all stripes—and when it comes to the stock market diversification mantra, you need to ask yourself who benefits from the “need” for diversification? You or your financial advisor?  According to Warren Buffett: “wide diversification is only required when investors do not understand what they are doing”.

By providing our clients with access to an array of concentrated investments coupled with some diversification we are able to offer portfolios that can behave independently of the market.  We invest only where we believe we have a competitive advantage and where there is a reason to expect we should do better than average.  The average is not acceptable in our book. 

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