Our Investment Style and Philosophy
The only simple rule in investment analysis is that there are no other simple rules. We use our experience and investment judgment, combined with our knowledge of relevant economic, competitive and risk factors, to evaluate a large variety of raw information. Ultimately, we develop our own estimates of current and projected future values of various investments in order to build investment portfolios designed to pursue our clients' investment objectives. Simply put, our own research powers our investment performance, and economics and investment analysis power our research.
In investing, that which everyone knows is seldom worth knowing, because common knowledge is usually built into each investment's current price. If we listened to the various investment gurus of the moment, read Wall Street opinions all day, and managed our clients' accounts accordingly, we would be relegated, at best, to mediocrity. Because we seek to pursue superior investment results, we focus instead on our own rigorous research and analysis of economic and investment factors. In order to enhance the independence of our research, we avoid certain common conflicts of interest and potential conflicts of interest, such as the use of “soft dollars” (paying for certain investment manager expenses with client commission dollars), investment banking activities (the managing of securities offerings), market-making (buying and selling securities using one's own inventory) and commission-oriented compensation.
In producing our own detailed, rigorous research, we consider a wide variety of economic and financial factors such as:
- Industry and company growth characteristics
- Competitive positions and barriers to competition
- Quality of management
- Stock price relative to important financial metrics, such as per-share earnings, cash flow, dividends, book value, replacement value, etc.
- Balance sheet analysis (e.g., liquidity, leverage, nature of assets and liabilities)
- Income statement analysis (e.g., operating and net profit margins, tax rates, etc.)
- Flow-of-funds analysis--a detailed review of the company's sources and uses of cash
- Insider holdings and changes thereto
- Labor relations
Although some people identify economics mainly with short-term predictions of macroeconomic growth, inflation and unemployment, we believe that the real strength of economics is in the analysis of powerful, long-term forces in our economy.
It is sometimes said that managers who place more emphasis on corporate earnings growth are “growth” managers, while those who place more emphasis on a company's existing assets are “value” managers. Although this distinction may be popular, we feel that a meaningful categorization of money managers isn't that easy. In practice, not only are there other common investment approaches (e.g., “contrarian” and “momentum” styles), but there are considerable practical differences among those managers who emphasize earnings growth and among those who emphasize asset values. J. V. Bruni and Company might appropriately be described as pursuing “growth at a reasonable price,” because while we recognize the importance of long-term growth in corporate earnings, we are rarely willing to pay high prices (p/e ratios) for such growth. Simply put, we tend to look for under-recognized companies in order to acquire our growth prospects at attractive prices.
Regarding taxes, there is an important difference between minimizing taxes and maximizing after-tax returns. Minimizing taxes typically requires a minimization of taxable income, which can lead to low investment returns. We focus on maximizing after-tax returns for our clients by carefully considering all relevant investment factors, including taxes, in our decision-making.
Our strategy is simple: We pursue superior investment performance in support of each client’s investment objectives through singularly independent and intensive research and analysis.