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Investment Adviser
YH&C Investments
President,Financial Services,Y H& C Investments
- Education UC Irvine
- Qualifications MBA, BA, CFA
- Investment Experience 20 years experience
- Founded 2004
Long Term GARP
The philosophy of Y H & C Investments revolves around the idea of buying a dollar bill for 50 cents. Investing is the idea of spending money today with the objective of a far greater return in the future.
The philosophy of Y H & C Investments revolves around the idea of buying a dollar bill for 50 cents. Investing is the idea of spending money today with the objective of a far greater return in the future. As a practitioner, I believe in the approach advocated by Warren Buffett of holding securities for a long period of time as a way to create wealth. The stock market has always been a volatile place, which is why there is opportunity. Business value in the stock market can fluctuate to tremendous extremes, which is where buying a dollar bill for 50 cents comes in. The businesses which are selected should be thought about in terms of quality and growth potential.
The reason why I consider myself mainly a GARP (Growth at a Reasonable Price) is to find businesses which can grow for long periods of time, but find them at attractive prices. I believe the path to wealth lies around finding great companies that have strategic competitive advantages and holding them as they grow larger and larger because of secular growth opportunities, which just means they can expand for long periods of time, typically a decade or more. These are not easy to find, especially at good prices.
I also have found good investors are trying to buy the most they can for their capital, regardless of what kind of style they use. I know secular growth opportunities arewhere outstanding investors make a great deal of money, but usually value and growth are tied at the hip and are not mutually exclusive, so an investor should get both when they invest in a specific asset or asset class.
The reason why I consider myself mainly a GARP (Growth at a Reasonable Price) is to find businesses which can grow for long periods of time, but find them at attractive prices. I believe the path to wealth lies around finding great companies that have strategic competitive advantages and holding them as they grow larger and larger because of secular growth opportunities, which just means they can expand for long periods of time, typically a decade or more. These are not easy to find, especially at good prices.
I also have found good investors are trying to buy the most they can for their capital, regardless of what kind of style they use. I know secular growth opportunities arewhere outstanding investors make a great deal of money, but usually value and growth are tied at the hip and are not mutually exclusive, so an investor should get both when they invest in a specific asset or asset class.
I believe that researching individual investment opportunities requires extensive work before capital is allocated. The following are the steps I try to go through when looking at unique investment opportunities, in particular individual equities in the public markets:
1. Fundamental analysis of the industry of the specific issue.
2. Competitive positioning of the individual company within its industry relative to its competitors.
3. Analysis of the past, present and future operations of the specific company, with emphasis on
growth opportunities.
4. Fundamental analysis of the operating performance of the specific company- metrics like gross margin, operating margin, net margin, return on equity, return on assets, turnover ratios, inventory and accounts receivable ratios.
5. Fundamental analysis of the financial situation of the company, including balance sheet metrics like cash levels, debt levels, contingent liabilities, lease obligations, and off balance sheet arrangements.
6. Analysis of the quality of earnings of the company.
7. Analysis of the corporate governance of the company, including the role of the CEO, board of directors, nominating, audit, and compensation committee structures and conflicts of interests or independence of the board.
8. Analysis of the management of the company and any conflicts of interest that may exist.
9. Specific research into a company's financial filings- including annual report and 10-Q filings, along with any 8-K filings, insider trades, and recent news involving the company.
10. Valuation Analysis of the current market value of the enterprise, market capitalization, and comparison of those metrics against industry competitors and the overall market.
11. Valuation analysis of the current issue versus its operating metrics.
12. Analysis of management ownership of the equity, stock option dilution, and share buyback possibilities.
13. Analysis of free cash flow of the company versus competitors.
14. Application of the current economic environment and the effect on the specific company.
1. Fundamental analysis of the industry of the specific issue.
2. Competitive positioning of the individual company within its industry relative to its competitors.
3. Analysis of the past, present and future operations of the specific company, with emphasis on
growth opportunities.
4. Fundamental analysis of the operating performance of the specific company- metrics like gross margin, operating margin, net margin, return on equity, return on assets, turnover ratios, inventory and accounts receivable ratios.
5. Fundamental analysis of the financial situation of the company, including balance sheet metrics like cash levels, debt levels, contingent liabilities, lease obligations, and off balance sheet arrangements.
6. Analysis of the quality of earnings of the company.
7. Analysis of the corporate governance of the company, including the role of the CEO, board of directors, nominating, audit, and compensation committee structures and conflicts of interests or independence of the board.
8. Analysis of the management of the company and any conflicts of interest that may exist.
9. Specific research into a company's financial filings- including annual report and 10-Q filings, along with any 8-K filings, insider trades, and recent news involving the company.
10. Valuation Analysis of the current market value of the enterprise, market capitalization, and comparison of those metrics against industry competitors and the overall market.
11. Valuation analysis of the current issue versus its operating metrics.
12. Analysis of management ownership of the equity, stock option dilution, and share buyback possibilities.
13. Analysis of free cash flow of the company versus competitors.
14. Application of the current economic environment and the effect on the specific company.
Y H & C Investments wants to concentrate capital in the positions of the companies that have the best businesses and growth prospects for a long period of time. There are not that many great businesses in the world, so if what we want becomes available, that is the time to build as big a position as possible. In addition, if the price goes down then I want to buy more of that equity. In the GARP Long Term Portfolio, 4 companies make up about 75-80% of the portfolio, so the allocation behind the portfolio supports the allocation discipline.
Regarding the sales of positions in the GARP Long Term Portfolio, Y H & C Investments believes great businesses are meant to be owned for many years, and in some cases decades. For example, I have owned Starbucks for over 15 years, and Liberty Media positions for well over 5 years. I only want to sell these companies if something fundamentally changes with the business, or buyers are more than fairly compensating owners for their share of the equity.
In the world sometimes events happen that makes one reevaluate positions. For example, when Japan had the earthquake in the spring, it was unknown how Liberty Interactive’s QVC Japan business would be affected. It was for about a quarter, but has since rebounded strongly. Or another example would be the BP oil spill in the coast and how much liability BP will incur versus partners, how the U.S. government pursues actions, etc. So when events come up which can affect a company, including possible management changes, Y H & C has to evaluate how material it could be to any of the holdings.
Model commentary
The Long Term GARP portfolio delivers in April
20 May 2013
Here's how the key holdings performed.
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