Over time, stocks have provided returns far greater than other favorite types of investments. Given a period of decades this advantage has been quite dramatic. Since 1926 cash equivalents of the sort found in a money market mutual fund just edged inflation, while long-term government bonds produced real, but modest returns over inflation. Only stocks showed the potential to produce real wealth. However, the rewards of long-term stock investing are accompanied with short-term volatility.
The longer your time horizon, the less an effect these short-term moves have on your overall financial future. Up close, on a day-to-day, or even month-by-month basis, stock market movements are as inscrutable as a painting viewed with a magnifying glass. Stand back far enough, and it begins to make sense. At Madsion Mosaic, we promote this kind of long-term perspective in our investing discipline, and we recommend it for our investors.
Our Philosophy on Stocks
We believe in investing in high quality growth companies whose true prospects are under-appreciated by the market. These companies should exhibit reliable, above-average earnings growth. Typically, they sustain that growth through a significant competitive advantage. By purchasing these companies at reasonable valuations, we believe we can provide our shareholders attractive long-term returns without the added risk associated with higher valued stocks.
Our Strategy
Our investment success depends upon identifying companies with reliable, above-average earnings growth. We accomplish this in two separate but related ways. First, we search for companies that have exhibited consistent, above-average earnings growth in the past. Since past performance is no guarantee of future success, our analysts perform in-depth fundamental research on prospective investments. We scrutinize financial statements, assess management's ability and analyze industry conditions and competition to determine the sustainability of a company's growth. Secondly, we identify companies that are transforming their businesses into more profitable and reliable ones. Typically we will wait for clear signs of this process before considering the shares for purchase.
Once we have identified the desirable companies, we determine the price we will pay for them. Since we only buy at reasonable valuations, our purchases tend to occur when the shares are under-appreciated or temporarily out of favor. Since we have a long time horizon and have confidence in the company's growth prospects, we have the luxury of waiting patiently for true value to be realized by the market. We feel this strategy can provide shareholders with above-average rates of return.
What Makes Us Different
The mutual fund industry has experienced tremendous growth over the last decade and the vast array of equity fund offerings can make the selection process difficult. We believe our investment philosophy sets us apart from the crowd.
Concentrated Portfolios
We strongly believe in the investment decisions generated by our in-depth research process. We want each stock to represent a meaningful commitment. Therefore our portfolios contain only 20-30 stocks as opposed to the 125 stocks held by the average mutual fund. Our portfolios are large enough to receive the benefits of diversification, yet concentrated enough to allow for superior performance. We believe our shareholder's money should be in our top investment ideas, not our 75th or 125th best idea.
Growth and Value
While we seek companies with above-average growth prospects, we will not purchase companies at excessive valuations. We believe this disciplined approach minimizes risk.
Patience
Our investment team takes a long-term perspective and avoids speculating on the unpredictable short term movements of stocks. We believe patience is an important virtue when it comes to stock investing.
