LCM's Investment Philosophy

There are three core principles that form LCM's investment philosophy: a focused approach, a long-term time horizon and a redefining of risk. The founder's commitment to these principles has been developed and refined over thirty years of investment decision making and direct accountability for managing investment portfolios.

A Focused Approach

Great investment ideas are rare. By utilizing a focused approach, LCM is structured to take full advantage of the insights generated from its analytical process. LCM's narrow and selective approach allows it to conduct more rigorous due diligence on prospective and current investments. This is a key differentiator and competitive advantage for LCM compared to the industry. Much like the portfolios of Warren Buffett or Philip Fisher, a winning portfolio can be comprised of a few ideas that generate the bulk of returns. Some investment managers today claim to take a focused approach; however, their portfolios typically contain forty or more individual stocks. The fortieth best idea of even the most talented investor is not likely to offer much for the client. While many investors believe they are reducing risk through such over-diversification, the overall effect is a dilution of achievable returns that can be generated from a few great ideas.

A Long Term Time Horizon

Over the years, investors and their clients have lost sight of long term results and have become conditioned to demand short term returns. When considering the appropriate period of time to assess the performance of an investor who purchases whole businesses, a rational time horizon could be five years or more. It takes time in business to create value. Just because stock prices are quoted every minute or every day does not mean that value creation from investing can be meaningfully measured on a short term basis. Put another way, it is a misperception that short term changes in price are a measure of value creation - they are merely a reflection of activity.

To consider a ten year time horizon as forty quarters is misguided. In addition, and perhaps not widely acknowledged, is the effect that short term measurement has on an investor's mindset and overall performance. An investor who reports every month or every quarter is under unrealistic pressure to appear smart in every period, the result is that the investor is prone to engage in short-term action for action's sake, rather than remain focused on the overall goal of long-term results. The LCM investment approach will not hinder the creation of long-term value by adopting the industry's short term reporting norms. LCM will typically report and comment on results once per year. Patience is a key ingredient in the successful application of a disciplined investment strategy - both for the investor and the client.

Redefining Risk

Risk is defined in finance textbooks and throughout the investment industry as volatility. This is indeed a form of risk; however, it is overemphasized. The primary risk that should concern an investor is the risk of incurring a permanent loss of capital when making an investment. LCM contends that the risk of permanent capital loss from an investment can be minimized through a diligent application of a value based investment philosophy with an important focus on quality.