2017 Q2 Note

By Jason Lesh, Managing Principal


Often times in this business, firms and individuals spend an incredible amount of time and resources trying to sell and market to prospects. And completely overlooked is the actual research: the foundation of a thesis and the guideposts to build a portfolio. This isn’t to say that nobody does the heavy lifting in this industry, but more and more often, we see "really smart people” with “complex portfolios” who, at the end of the day, are simply passive investing. In other words, they are tracking an index. Whether it booms or busts. Ignoring the future prospects.

We are not indexers. When Nick and I founded the firm in 2010, we prioritized the importance of research. Instead of beautiful office space (or any office space, for that matter) we invested in a world-class portfolio manager. Before we even had a logo, we were subscribing to research and seeking out like-minded thinkers.

It would have been much easier to build a portfolio of ETF’s and mutual funds to follow the market, sit back, save money, and focus on shaking hands and kissing babies. Especially with the rise in ETF’s and passive strategies these days. Barron’s reported that more than $800 billion is on track to flow into passive strategies this year. And per Strategas Research Partners, four of the five most actively traded securities were ETF’s last year.

Buying the market and forgetting about it has worked in the past. But as the international markets and the United States economy have evolved over the past 70 years, we need to be very mindful of what we want to own and what we want to avoid. Average holding periods have collapsed. Volatility is at historically low levels. And until recently, correlation among S&P 500 companies has been growing.

If we want to beat the market and make sound, long-term investments, we have to do something different. Yes we are value investors. Yes we are contrarian at times. And we are most definitely active investors.

This quarter, Nick touches on why we don’t want to blindly follow the US Stock Market and where we actually see long-term opportunities. But it takes a calm and patient demeanor and a willingness to take the road less traveled.