67 WALL STREET, New York - December 19, 2011 - The Wall Street Transcript has just published its Large Cap Value and Other Investing Strategies Report offering a timely review of the sector to serious investors and industry executives. This investing strategies report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Bottom-Up Stock Selection - Cyclical Sectors - Enduring Trends and Thematic Investing - Top-Down Investing
Companies include: Citrix Systems (CTXS); AT&T (T); Caterpillar (CAT); Chevron (CVX); Chubb (CB); Church & Dwight (CHD); Coke (KO); Disney (DIS); Google (GOOG); Home Depot (HD); Honeywell (HON); IBM (IBM); Intel (INTC); Johnson & Johnson (JNJ); McDonald's (MCD); RockTenn (RKT); Schlumberger (SLB); State Street (STT); and many more.
In the following brief excerpt from the Large Cap Value and Other Investing Strategies Report, expert Portfolio Managers discuss the outlook for the sector and for investors.
Edward O'Connor, CFA, is a Partner and Analyst/Portfolio Manager at Cooke and Bieler. He graduated cum laude in economics and philosophy from Colgate University. He served as a U.S. diplomat in Cuba and Guatemala prior to receiving his MBA with concentrations in finance and international business in 1999 from the University of Chicago. Mr. O'Connor then joined Cambiar Investors in Denver, Colo., where he worked as an Equity Analyst and Portfolio Manager, and participated in Cambiar's 2001 management buyout. He joined Cooke & Bieler in 2002.
TWST: How would you describe Cooke and Bieler's investment strategy?
Mr. O'Connor: We start with three observations about the world, three sort of core beliefs that guide us in our approach to investing. One is that fundamentals drive stock prices over time. It sounds obvious, but it's something that we think the world has largely lost track of as holding periods have gotten shorter and shorter. But your long-term returns in your stock investment are going to be largely a function of the returns that the business generates. That's one observation.
The other is that capital preservation is a key driver of returns, and some of that is just math. If you lose 25% of your money, you need to make 33% just to get back to where you started from. Also, while measures of risk have gotten more and more intricate and involved, sometimes investors can lose sight of the reality that their real risk is having as much money at the end of the period as they need. You are investing for a reason. So we keep that focus on not permanently losing our clients' money as the driver of our risk controls.
And our third observation is that you have to carefully structure and manage your organization, because the culture in which people operate in many ways defines the decisions they'll make. You can have smart people doing very accurate risk assessment, but with the wrong incentives they can make the wrong decisions. We're very focused on making sure our organization is set up to benefit clients. And at the core of that is our team structure. We don't have one portfolio manager, we have a team of seven analyst/portfolio managers, which we think gives us a competitive advantage. That's sort of where the philosophy starts, and that drives us to really be fundamental-based, value investors - good businesses with good balance sheets that we pay attractive prices for.
TWST: We're going to talk specifically about the firm's Large Cap Value strategy, so please tell us a bit more about that in terms of goals and portfolio characteristics.
Mr. O'Connor: I'll start with the characteristics. It's a fairly concentrated portfolio, typically between 40 and 50 holdings. We do a lot of research on each individual company in the portfolio, and we want them to be a significant enough part of the portfolio that their performance matters. It is very fundamental and bottom-up driven, so sector weights will vary significantly from the indices. We're generally measured against the Russell 1000 Value Index, though we do have some clients who prefer to measure us against the S and P 500. In general, our goal is, over a full market cycle, to outperform those indices by 150 to 200 basis points, and to do so with less downside risk. One of the hallmarks of Cooke And Bieler's performance is that we tend to outperform strongly in down markets, again coming back to the focus on capital preservation.
TWST: How do you incorporate macro issues, trends and sector plays?
Mr. O'Connor: We are rigorously bottom-up, but we recognize that bottom-up investing has to go all the way to the top, and so we are aware of macro trends and what's going on. We do that in two ways. One is part of our risk control. We want to make sure that we understand what macro factors our companies are exposed to, and make sure that the portfolio overall doesn't have an outsized exposure to some macro factor that we don't understand or aren't comfortable with.
For example, today it might be easy to find businesses in a number of sectors and industries which are cheap because they are in some way exposed to European default risk. We don't want to have a large portion of our portfolio exposed to that risk, which we don't think we have an ability to forecast. So we're constantly looking at the portfolio to make sure we are not getting an inadvertent macro bet embedded into the portfolio.
The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This special report is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.
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