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 A
well-crafted investment strategy relies on correct definition
of objectives and on appropriate asset allocation and style
selection. It is important to recognize, in addition, that
success of the overall plan depends heavily on building portfolios
that have desired characteristics and that do not evolve in
a random, unintended fashion. Further, since the characteristics
of a portfolio are defined by the holdings in the portfolio,
security selection becomes critical to the success of the
overall strategy.
We commonly encounter portfolios that have been essentially
unmanaged over many years. Such portfolios, even if only moderately
successful, often will be poorly diversified and will contain
holdings with a low cost basis. The aversion to paying capital
gains taxes can compound the challenge of developing a well
constructed, actively managed portfolio. In such instances,
we develop a plan to deal with the issues presented by the
portfolio, with an explicit understanding of the client's
tolerance for paying taxes.
Portfolios we manage typically have representation in all
major sectors found in the S&P 500 Index, but we may diverge
significantly from those sector weightings. The emphasis we
place on a sector typically is determined by a combination
of our strategic view of the sector and by the prevalence
of undervalued securities in the segment. For very small sectors,
we may have no representation at all.
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