At Patton Albertson & Miller we believe clients should fully understand our investment philosophy and they should make sure it is consistent with their own investment expectations.
To fully understand our philosophy, we should begin by defining the two primary participants in the stock market – investors and speculators. Benjamin Graham’s definition of investors and speculators is useful in this regard:
“An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”
Simply put, the investment philosophy of Patton Albertson & Miller is to be investors and not speculators.
The three pillars of our investment philosophy are:
Thorough Analysis
- We believe that a particular stock is worth the present value of the company’s future free cash flow (cash flow from operations less required capital expenditures). We value stocks the same way an informed business person would value a company if they were considering the purchase of that company.
- Unlike speculators, our success is more dependent upon the accuracy of our analysis rather than the belief that another investor will pay more for a particular asset later (momentum investing).
Safety of Principal
- We have a bias toward safety. We would rather earn a more modest return and avoid significant loss in a portfolio (like the 2000 bear market) than chase returns by taking inordinate risks.
- We buy stocks at discounts to our estimate of their value which provides a “margin of safety” in case our analysis is wrong.
Adequate Return
- We are value investors. We try to buy stocks for less than our estimate of its value and expect to receive a return more or less in line with the financial performance of that asset.
- Buying stocks at a discount also affords us the opportunity to earn higher returns if our analysis is correct.
- We are patient and deliberate in our actions. We believe that successful investing is a long term endeavor and actions based on short term emotions will not produce satisfactory results over a long period of time.