We at LTBC Capital Advisors LLC believe in bottoms up fundamental company analysis. We have over 13 years of security analysis and portfolio management experience and another decade plus of following the financial markets and learning the basic building blocks of doing in depth financial analysis on individual companies. Our disciplined approach is all about discovery. We identify companies with solid earnings growth or underappreciated business models that are trading at relatively low price-earnings multiples or have above average future growth potential. We invest in diversified portfolios of stocks in leading industries to preserve capital and achieve long-term capital appreciation. Our investment practice is to analyze individual companies to understand not only their intrinsic value and how they stack up as an investment but also where they stand in relation to industry competitors and the economic cycle. We constantly monitor the economy and look for signs of change on the horizon that might affect our equity as well as fixed income holdings. Likewise we stay alert for any evidence that the fundamentals of a company or industry are deteriorating. Careful selection of individual companies with attractive valuations provides the stable foundation of a well diversified portfolio.
Diversification is the key element underpinning modern portfolio theory. The goal is to blend a number of non-correlated companies which should reduce the risk of the total portfolio while maximizing return potential in relation to the risk taken. We believe that a portfolio of 20 to 30 stocks can accomplish reasonable diversification while allowing for meaningful positive attribution as well. We believe that growth stocks are great but great ones rarely come cheaply. Value stocks regularly look cheap but all too often they stay that way. Many investors think you have to be in one camp or the other, we disagree. We believe that a well diversified portfolio should have some of each and what matters the most is that every investment should fit the description of GARP or growth at a reasonable price. The trick in finding superior investments is to find positive attributes in a company that either others do not see or are not wiling to pay for. Over time, if chosen well, you expect other investors will better understand what you had seen earlier and be willing to pay up for those attributes in the future.
We invest in value companies where there will be more growth than the price would indicate. Similarly we target growth companies where the company is likely to grow at a higher rate longer than the market price would indicate. Another way to diversify is to hold companies that move with the economic cycle and those that have less correlation with the cycle. Highly cyclical stocks can be tricky as to when to get in and out but can produce very high returns if timed appropriately. In general we prefer to buy superior companies that have sustainable competitive advantages so that we can stay with them over the long haul. We prefer to over weight industries whose prospects are most attractive and underweighting or not own at all those industries whose prospects are below average.
We define large caps as companies with market capitalizations of over $10 Billion, medium capitalization companies as those with market caps between $1 Billion and 10 Billion, and small caps as those with market caps of under $1 Billion. Large caps typically are more consistent, pay dividends and historically have been perceived as having less risk compared with smaller companies. More often than not this is attributable to their long track records. Mid cap stocks tend to enjoy greater share price stability than small cap stocks, but often offer greater opportunity for upside growth than their larger brethren. We believe that small and mid cap stocks present investors with an attractive longer-term growth potential as well as a convenient way to diversify their equity holdings. Our disciplined approach identifies undervalued companies we believe trade at a considerable discount to their true intrinsic value. Our approach identifies companies with solid earnings growth, positive investor sentiment, and strong future potential. We invest in a diversified portfolio of top notch companies that include large, small and mid capitalization stocks in leading industries to achieve both preservation of capital and long-term capital appreciation. Some of the positive qualities we look for are as follows.
- Consistent financial performance and sound dividend growth.
- Above average sales and earnings growth.
- Companies with strong or improving balance sheets.
- Above average return on equity.
- Catalysts to power earnings going forward.
- Growth at a reasonable price with a strong gross or net margin.
- Documented history of strong management.
- Companies that are new to the market, under followed or been restructured.
- Companies whose business model has changed for the better.