We believe that when it comes to investment management, there are 4 critical “P”s that clients have to be aware of:
1. Philosophy
2. Process
3. People
4. Performance
Philosophy
We conduct our investment management business as a private professional practice.
Accordingly, we believe that we have a fiduciary duty to treat both our clients and their assets with the utmost care and respect.
In summary:
• Nothing is more important to us than the client and the client’s assets
• You cannot eat relative performance… only absolute performance counts
• Respect, service and civility are client rights, not privileges
Process
We monitor a select cadre of 30-40 mega-cap companies whose stocks exhibit the following general characteristics:
• Dominant in their marketplace
• Derive consistent and reliable free cash flow
• Have a long history of dependable and in many cases, increasing dividends
• Are typically resistant to market shocks and trade within a consistent range of plus or minus 10-20%
From this group of stocks, our clients invest in up to 20 in that we call their “Fortress Portfolio”. We are very patient about when we buy these stocks for our clients and wait until they are at our target price, which ensures that they meet our determination of attractiveness. We calculate the ideal target price based on a combination of factors to ensure that the stocks represent real (and often very deep) value to our clients.
Once a stock is acquired, we hold it and collect dividends as they are paid. In addition, we selectively write covered calls (options) against those positions in order to earn additional premium income. Sometimes, if we don’t own the stock but wish to buy it….and it is close to our desired target price…we will sell a put option against it. We do this to earn a premium (generate income) but also to ideally enable us to buy the stock at an even better price.
We will only sell the stock when:
1. We have to…because it is called away from us. In other words, we sold a covered call against it and the stock rose in value enough for the call option to be exercised by the person who bought it from us. This is not a bad outcome as we collected the option premium and the gain in the stock price, not to mention the dividend. We now patiently wait to repurchase that position or buy another stock that meets our target price so that we can repeat the process.
2. The stock drops enough to trigger our stop price. The key to investing is to do your best NOT to lose money. That is why we have to know when to sell a losing stock. Just as we have a target price at which we want to buy a stock, we also have a target price at which we will sell it if we have to. This is called a “Stop Loss” and just as the name infers, it is designed to “stop a loss” of investment capital. Therefore, a stop loss of 20% means that when a stock loses 20% of its value, it is sold. Because we try to buy a solid stock at a price which we believe represents real value, we are hoping never to be “stopped out”, however, as we constantly tell our clients, the market can and does do crazy things….especially during crazy times, like now. So, we have to expect the unexpected…and plan accordingly.
3. The stock no longer qualifies for our “Fortress” status. While we fully expect the companies we own to continue to dominate their markets, there is always a possibility of their falling on hard times. A classic recent example is BP. While it was not one of our target stocks, the Gulf of Mexico disaster clearly illustrates what can happen to a global energy giant when things go terribly and unexpectedly wrong. Not only did the stock price collapse, the company was forced to suspend the payment of a real dividend, a key requirement to be part of our Fortress portfolio.
You can read more about our process in both the Investment Strategy section of our site and in the FAQ section (which, admittedly is a work in progress).
People
At Craven Capital, our team represents a collective 50+ years of legal, investment management and wealth planning experience. More importantly, each of our team members maintains a healthy cynicism for Wall St., while maintaining a deep and abiding loyalty and commitment to our clients and their families. At the risk of being just a little repetitious:
• We believe in the concept of fiduciary duty from advisor to client
• We believe in frequent, honest and open communications with our clients
• We believe that we can do well by doing good for our clients
Performance
In all we do, we strive to achieve an absolute return for our clients:
• Each portfolio is customized as to timing and positioning so performance will vary from client to client
• Target of an average of 4% dividend yield with 4%-8% in option premium (total: 8-12%)
• Actual cash on cash returns per position will vary can be significantly higher or lower depending on timing and market conditions