Investment Philosophy 

The Firm’s equity investment philosophy is based on three main premises.  First, over the long run, stock prices are driven by underlying corporate financial performance in terms of growth in earnings, dividends, and free cash flow.  Second, a long investment time horizon is required, in order to allow the superiority of those companies with the strongest financial performance to be reflected in their stock prices.  Third, the Firm has a strong bias toward higher quality companies, as higher quality companies generally have stronger operating franchises which are capable of producing sustained above average financial performance. 

The Firm’s equity investment philosophy seeks to balance notions of “value” and “growth.”  Given that a long time horizon is a necessary ingredient to successful equity investing, the Firm dedicates significant research effort toward identifying those companies which can generate above average long term growth in business value; in essence, a long time horizon means it is more important to identify and own successful, growing companies, as a large proportion of an investment’s total return over relatively long holding periods will be a function of the growth of the value of the business, as opposed to changes over time in the market’s valuation of the business. 

That said, the Firm believes that valuation is a critical component of the investment process, and devotes a significant portion of its research process to the development of valuation approaches for every equity investment in order to determine appropriate purchase and sale points.

The Firm’s equity investment philosophy, as articulated above, drives a research and investment management process that is straightforward. 

The Firm primarily invests directly in equities, but will also use mutual funds, ETFs, and derivatives to accomplish specific client investment objectives.  Typically, allowable investments in client portfolios are a function of the investment policy statements that govern each client relationship.  The Firm has extensive experience investing in a wide range of investment securities and vehicles.

The Firm’s core investment competencies include:  1) the development of investment policy statements that accurately express each client’s unique investment goals, objectives, tolerance for risk, and other client specific considerations; 2) fixed income and equity investment management; 3) client communication (the ability to ensure that clients are aware of and comfortable with all relevant factors involved with the investment management of their assets on an ongoing basis); and 4) asset custody and safekeeping.

The Firm has wide ranging expertise in the area of equity investment management.  The Firm’s core equity investment philosophy is that successful common stock investing is predicated on owning high quality companies with demonstrable records of growing shareholder value over a long period of time, and that over the long run, the financial performance of such companies will drive significant stock price appreciation that approximates the underlying growth in business value.

The goal of the Firm’s equity investment process is to construct a diversified portfolio of high quality companies with strong growth prospects selling at attractive valuations.

To that end, the Firm’s research process contains elements of both a “growth” and a “value” style; ultimately, we seek to construct portfolios comprised of companies that have strong growth potential that sell at attractive absolute and relative valuations.  We are agnostic as to market capitalization, and client portfolios will typically have large (usually around 75%), medium (about 20%) and small (roughly 5%) capitalization companies. 

The Firm’s research process is internally driven and bottom-up, in that we analyze each company on its own merits.  As part of our primary research process, we visit companies, utilize sell side and boutique research, and attend numerous company-sponsored analyst events and industry conferences.  The Firm maintains two distinct research lists (a monitor list with about 200 companies, and its comprehensive plus list, a narrower list of about 80 companies that the Firm uses to drive portfolio management decisions), and maintains four model portfolios (Growth, Value, Growth and Income, and Core Foundation) which are also used to drive portfolio management decisions in light of actual client portfolio investment objectives.  Finally, Bridges Investment Fund (BRGIX) is managed by the Firm and represents a good benchmark for the Firm’s best investment ideas over time.

The Firm’s equity research and investment process focuses on two central areas:  qualitative and quantitative.  Qualitative criteria include growth in revenues, earnings, dividends, and free cash flow, consistency of financial performance, fundamental positioning in sectors and industries, new product development, management characteristics, and balance sheet and profitability performance (margins and ROE) over time and prospectively.   The goal of the qualitative part of the research process is to identify companies with superior long term competitive franchises and above average qualitative characteristics.

Quantitative analysis seeks to identify those companies that are most attractively valued given that they meet our qualitative criteria.  Quantitative approaches used include dividend discount models (net present value of future cash flows), and analysis of appropriate multiples of earnings and free cash flow given expected growth over time, as well as relative valuation versus historical and prospective comparable, industry, and market benchmarks.  The Firm assigns an appropriate risk premium to purchase candidates above the current yield on the 10 year Treasury, and will buy and hold equities that are valued attractively relative to the long term returns implied by the current price.