Investment Philosophy / Strategy
Investing is part art and part science.
Investment management is a craft business, a brainpower business, where the human element cannot be easily replicated. The human element, our colleagues who comprise SCM, add real value through a well-developed, disciplined investment strategy founded on what can variously be called inference reading from known data, extensive information analysis, or intellectually independent research. This work is both quantitatively and qualitatively intensive, but well worth the effort.
At SCM, we consider ourselves to be risk managers. We strive for both long-term absolute returns and relative returns above benchmarks with a focus on risk-management and downside protection over a full-market cycle. We always seek to invest without taking too much risk. We always seek to buy stocks with limited downside vulnerability.
When valuations are cheap, we often may be able to buy stocks with limited downside vulnerability in every economic sector. But when stocks are expensive there may be sectors (such as technology in 2000 and financial services in 2008) that expose wealth to excessive downside vulnerability. When this occurs, we are willing to have zero exposure to some market sectors. One of our primary goals is to minimize losses. We are recognizing the reality of market risk (and managing that risk in order to preserve capital) so that we can take advantage of better valuations when opportunities arise. When there is a lack of investments that satisfy our criteria for absolute valuation and return possibilities, cash will build as we await better opportunities. We are not afraid to hold cash when it makes sense. Cash, or liquidity, is the residual of investment opportunity. We do not begin our investment research with a particular cash level in mind. Thus, cash levels are a residual of actually having a disciplined investment process to which we adhere. For SCM, we use cash as a risk management tool.
In a nutshell: We seek to preserve capital and accumulate wealth without taking unnecessary risks.