To learn more about our Everlasting Strategy, please watch the brief but insightful introductory video below…
Then simply scroll down to get a more in-depth look at everything from this strategy’s goals and objectives… to who this strategy is designed for… to the particular portfolio management process it incorporates. And, of course, the risks.
Our investing philosophy hinges on five core objectives:
It is difficult to quantify a strong management team, a thriving culture, and a sustainable competitive advantage. Instead, we try to qualify them using various frameworks in order to determine which companies are the true standouts. For example, one tool we use is the "Do-Say" ratio. We’ll look for the things managers say to investors in all of the communications we analyze, and then compare those to what management actually does. The higher the ratio, the more confident we can be when assessing what the management team is doing, why they are taking such actions, and how effectively they are running the business.
In his book Firms of Endearment, Professor Raj Sisodia found that companies that do "good" by taking care of all of their stakeholders tend to outperform the stock market by a considerable margin over the long term. Using the framework developed in the book, as well as the plethora of frameworks to assess the sustainability of a company’s competitive advantage, we can make judgments about whether a company deserves a spot in the portfolio.
Once we find a company that meets this criteria, we are willing to pay a reasonable price, as opposed to waiting for a bargain price, for its stock. And we’re very reluctant to sell. History has shown that wonderful businesses with great management teams and cultures of success have the ability to create tremendous amounts of value. By acting like business owners instead of stock traders, we allow the portfolio to have very low turnover. The most likely reasons we’ll sell a stock out of the portfolio will be that the investing thesis has changed for the worse or we have found an even more compelling idea.
The Everlasting Strategy will look to own 15-30 stocks at any given time, depending on the opportunities available in the marketplace. Within that range, the best ideas will receive larger allocations. The idea is to find a balance of concentration and diversification that will give us the best opportunity to outperform the market over the long run. Although we don’t have allocation limits, preferring to let our winners run, the team continuously monitors allocations to make sure the risk/reward trade-off remains favorable.
We select companies for the portfolio using fundamental research, with specific attention paid to the factors in the portfolio’s goals and objectives. Although we do perform valuation work, it is not the dominant factor in the investment decision. The team uses a combination of the qualitative and quantitative analyses to determine the risk/reward profile of each company.
We want to allocate the most capital to our best ideas, defined by the qualitative and quantitative factors above that lead to an assessment of the risk and reward associated with each investment idea. As such, we have set loose guidelines around position sizes:
|Low Reward||High Reward|
Actual allocations can vary, but we will not initiate a position of less than 2%.
As stated above, we expect the portfolio to have very low turnover. Once we find a great business that meets the criteria discussed above and trades at a reasonable price, we would prefer to hold that position as long as possible, if possible.
We will make adjustments to the portfolio over time, as new information about each individual company becomes available. But we do not expect to make frequent, significant changes to the portfolio. The most likely actions to be taken over time are:
Finally, we expect to be close to fully invested at all times. The team will hold a small cash position (2%-4%) at all times in order to be able to quickly take advantage of opportunities that arise in the marketplace.
The value of investments in the Everlasting Strategy may increase or decrease, which will cause the value of the investor's portfolio to increase or decrease. Investors may lose money on their investment and there can be no assurance that the strategy will achieve its investment objective and goals.
The principal risks inherent in this strategy are:
The stock of any company may not perform as well as expected, and may lose value, because of factors related to the company, including adverse developments regarding the company's business, poor management decisions, or changes in the company's industry or popularity of its goods and services. In the event a company becomes insolvent, stock holders will generally have lowest priority among owners of that company's obligations as to the distribution of the company's assets. Stocks may also be affected by general market and economic factors, even when their companies' respective business fundamentals are unchanged.
Small and Mid-Capitalization Companies
The securities of smaller companies may involve greater risks than do those of larger, more established companies, because the small companies may, for example, lack the management experience, financial resources, product diversification and competitive strength of larger companies, and their trading may be more volatile.
Please see Appendix A to our Investment Advisory Agreement for a discussion of additional risk associated with this strategy.
Each Personal Portfolio is subject to an account minimum, which varies based on the strategies included in the portfolio. Motley Fool Wealth Management retains the right to revise or modify portfolios and strategies if it believes such modifications would be in the best interests of its clients, and we may modify allocations within a client's account subject to the constraints of each client's current risk score and objective. Clients should be aware that their individual account results may not exactly match the performance of the Model Portfolios.