Investment Principles

We have learned through many years of investment experience that it is vital to have clearly articulated investment principles and to follow them.

Our Clients want us to be prudent managers of their funds. We seek to earn a return that approaches the historical total return on equities, but to do so with significantly less volatility. This goal has been achieved for a composite of Discretionary portfolios since 2001. Our client’s portfolios are diversified and balanced and usually generate significant income from dividends and interest.

• Diversify by Traditional Asset Classes:
  Stocks, Bonds, Cash-like assets.
• Diversity by Use of Low-Correlation Assets:
  i.e. certain investments do not closely follow movement of the U.S. Stock market such as real estate, foreign bonds, real assets, commodity- oriented stocks (mining, oil and gas, water utilities)
• Avoid Overexposure to Any One Company:
  Usually no more than 3% to 6% of a Portfolio is placed into any one security. A mutual fund is usually limited to less than 20% of a client’s portfolio.
• Liquidity is a Priority:
  Usually our client’s portfolios are 100% invested in assets that can be readily turned back into cash.

• Government bonds are a favored vehicle for profiting from interest rate changes.
• Vary “duration” (effective maturity date) to benefit from perceived inefficiencies between maturity dates.
• Use high quality corporate bonds when they offer overly generous yields above treasuries.
• Convertible bonds may be used for combined income and appreciation from companies with good credit and positive business prospects.
• Preferred stock may be used when credit outlook for issuer is positive.
• International issuers are acceptable when of high credit quality and when securities are denominated in strengthening currencies or hedged against currency fluctuations.

• Stocks and similar securities representing ownership of an enterprise (real estate investment trusts, master limited partnerships) must be liquid, that is, traded on an exchange with independent valuation that can be accessed on a daily basis. Trusted Financial does not recommend private investments.
• We look for reliable free cash flow from the enterprise.
• When researching companies that have free cash flow and substantial cash holdings, we want to see regular share buybacks and/or dividend increases.
• We prefer to own companies in which management holds a meaningful stake.
• Ideally, we would like to purchase a company’s shares when they appear to be trading at a price below their intrinsic value. Intrinsic value is usually estimated using a discounted cash flow analysis of a going concern. We believe in the approach applied by legendary investor Warren Buffet and his mentor Benjamin Graham. However, consideration of value components that may be difficult to quantify, such as reputation, trademark ownership or depreciated assets with hidden value may play into our investment selection.
• We seek to own businesses with a wide “moat.” That is, a company that offers a product or suite of products that are difficult to duplicate. We also like companies with a loyal consumer base.
• We do not usually speculate on mergers, spin offs, stock splits or similar financial engineering.
• While we are not market timers, we do seek to position purchases and sales using technical analysis, especially point-and-figure charts that may telegraph a major shift in trend.