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November 15, 2022

Why it’s time to move beyond the passive vs. active investment discussion.

The discussion around active portfolio management and passive management is an ongoing one. But we prefer to shift the discussion in the direction of proactive investment management.

Let us explain: An active approach selects specific investments based on an assessment of their worth and the opportunity to outperform indexes. A passive approach eschews the risk and rewards of higher investment returns in favor of passively matching benchmark index returns be they positive or negative.

Investment decisions are based on extensive and ongoing research.

We look past today’s ups or downs in the market and into the potential of individual companies that are well positioned to weather whatever changes lie ahead. In doing so, we’re able to uncover opportunities and create long-term advantages.

Proactive investment management: The bottom-up approach.

It’s ironic that to truly understand an expansive picture one needs to zoom in at the ground level. But it’s true.

It’s not enough to know what’s going on in the world, the marketplace, or all the industries that make up the economy. Because beneath all that are the individual companies that drive it. And each has its own management team, income stream and operating models.

All of which becomes even more important in challenging times like these. When we focus first on quality, we’re able to look for and identify quality companies with sustainable advantages that help them weather the unpredictable storms during the long period we plan to own them.

It’s an ongoing proactive review that’s part of our Value+Quality™ discipline, which you may have heard us talk about before. And it’s what drives us to ask questions such as:

  • Is the company’s performance improving and do those improvements appear sustainable?
  • How does its leadership navigate (or get in front of) secular changes?
  • Can the business stay on track, even throughout economic disruption?
  • What are the facts, circumstances and expectations driving valuation metrics?
  • What are the differences between those expectations and reality when facts and circumstances change?

By looking at current and historical fundamental metrics, our analysts are better able to understand how these metrics may be impacted by future events, both expected and unexpected.

Bottom line: The more proactive we are, the more relaxed you get to be.

It’s at times of uncertainty like we’re experiencing this year that the market often provides an increased number of quality long-term investment opportunities. We remain steadfast in our efforts to uncover specific opportunities and deploy capital toward them.

Because of this, our clients can stay confidently engaged without worrying about whether the market is at the bottom or the top — knowing the companies we own are well positioned for the future.

If there’s anything else on your mind — be it globally, economically, technologically, environmentally, or even about a new activity you're pursuing — please reach out. We welcome the opportunity to continue the conversation.

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