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Long-term equity investors are best served by diversified portfolios of high-quality companies purchased at attractive valuations. Compelling opportunities can be found in both growth and value stocks, and we believe that a core portfolio should contain a blend of the two. Because the wealth creation process is a function of generating high after-tax returns, we search for investments that will be productive for many years. This approach limits portfolio turnover and the resultant capital gains taxes. Our goal is to achieve superior results over a three to five-year period. We believe that a global perspective is essential in the stock selection process. This perspective is expressed through holdings of U.S. based multinational corporations, as well as ADR’s of foreign based industry leaders. We further augment international participation through the select use of actively managed international mutual funds and Exchange Traded Funds. Over the past two decades, high-quality stocks have generated returns in excess of the overall market (S&P 500). This outperformance was achieved with a lower volatility and risk profile than the market. We believe this is due to the superior fundamentals of high-quality stocks. Their higher and more stable level of profitability, as measured by such parameters as gross margin, net margin, return on equity, together with compounded earnings and dividend growth has translated into a higher and more consistent equity return over the long term. Quality rankings, however, do change over time. The challenge to our style is to anticipate these changes through ongoing analysis. In our approach, we generally find that equity recommendations are based on one or more of the following criteria:
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