Portfolio Management
What is your investment approach?
What do you mean by “value investing?”
What is the distinction between “active” investing and “passive” or “index” investing?
Will I have to sell all or part of my current investments to work with you?
What is your investment approach?
We are “value” oriented investors who build portfolios around a core of no-load mutual funds the managers of which seek to identify the “intrinsic value” of securities, to purchase securities at a significant discount (25% or more) from intrinsic value, and to sell such securities as they approach “intrinsic value.” “Intrinsic value” is dynamic and subject to change over time based upon what is happening in the underlying business (not in the securities marketplace). In addition to these funds, we select individual stocks based on their value and to meet the needs of individual client requirements.
We also seek to reduce market risk by diversifying client holdings across multiple asset classes including not only traditional equities and fixed-income securities, but also including commodities, timber and real estate.
We advocate “active management” of portfolios rather than “passive investing” through “index funds.”
Back to Top
What do you mean by “value investing?”
Value investing” is a process whereby an investor seeks to identify the intrinsic value of a business through the analysis of financial statements (including balance sheets, not just income statements), publicly available documents, and information from other resources including knowledgeable industry participants. Based on this “fundamental analysis” the investor forms an estimate of “intrinsic value.” Once intrinsic value is formulated, the value investor seeks to acquire securities of the business at significant discounts to intrinsic value (rather than at fair market value).
At Martinelli Discenza “value investing” involves a long-term (at least two years, usually more) time horizon, enabling us to be active investors while controlling costs. It is an assumption of the value investor that with the corporate resources the investor has discovered through his analysis, whatever factors have caused the issuer’s shares to trade at a value significantly below intrinsic value will be cured over time, and that a profit will be realizable as the market value of the issuer’s securities approaches or attains intrinsic value.
Because “value investors” and “growth investors” each engage in analysis of the underlying company, “value investing” is sometimes juxtaposed with “growth investing” with the suggestion that the value investor is only interested in buying securities that are “cheap.” This suggestion is misleading. While the value investor does require “cheap” prices, he does so to protect against errors in judgment and to provide the potential for appreciation of the investment (beyond the initially-determined “intrinsic value”) over the longer term as the financial markets recognize the “intrinsic value.”
In our view, “growth investing” is best distinguished from “value investing” in that the growth investor’s evaluation process affords primacy to income statement (rather than balance sheet) analysis and is acutely sensitive to short-term trading concerns (i.e., the latest earnings per share) rather than the longer view.
Back to Top
What is the distinction between “active” investing and “passive” or “index” investing?
“Active” investing is a process whereby a portfolio manager, on the strength of the best research he can find, selects, purchases and sells for client accounts the securities he thinks will best perform within the context of the client’s asset allocation.
“Passive” investing, commonly called “indexing,” is a process whereby a portfolio manager- invests client funds with the goal of matching the relative securities weightings and the performance of an established “index.” The index is usually comprised of a diversified portfolio of securities of a certain market, i.e. large cap equities or emerging market bonds. No effort is made to evaluate the “intrinsic value” of any company; instead one is investing in the market as a whole.
Back to Top
Will I have to sell all or part of my current investments to work with you?
In most cases, there are some significant changes we would recommend, but often these can be implemented over time, or can be adapted to some of your current holdings. For example, a client may have significant unrealized investment gains in his current holdings that could trigger income taxes if they were sold. In other cases, clients have specific holdings that they have a particular reason to keep. In all cases, we will use our best judgment to recommend the most appropriate course and then adjust and adapt it to accommodate specific concerns.
Back to Top