At Nicholas, our equity investment philosophy is straightforward. We work to build wealth for our clients by purchasing high quality, growth companies that are reasonably priced. Our goal is to find individual companies that we believe are positioned to outperform their peers and the market.
Our managers and analysts look for companies that have been growing steadily, have strong balance sheets, experienced and honest management, and formidable competitive advantages. It’s not enough for a company to have these characteristics; it also must be trading at a reasonable price. We are patient once we have identified and purchased stocks with potential, preferring to invest for long-term gain, rather than short-term profit.
- We do not attempt to forecast short-term swings in the stock market.
- We believe superior, long-term results are achieved by minimizing capital losses.
- We focus on individual companies rather than industries or sectors.
- We look for reasonably priced stocks with above average earnings growth.
- We often take a contrarian approach, choosing lesser known or out-of-favor stocks.
- We are investors, not traders, so our portfolio turnover is moderate.
- We are patient investors.
Our Investment Strategy: Growth at a Reasonable Price
While many mutual fund managers subscribe to either a growth or value investment strategy, we prefer to incorporate the best of each. Our management style is called Growth At A Reasonable Price (GARP), and it helps us to minimize the risks inherent in both growth and value investing.
Growth managers look for companies they believe will grow rapidly as the result of strong sales, talented management, or dominant market position. Companies that are growing rapidly are usually popular with investors and may be expensive relative to their peers. The inherent risk in growth investing is that a company’s price may fall if it fails to meet investors’ expectations.
Value managers look for companies that are out of favor or have suffered a setback. Generally, these companies are disliked or overlooked by investors and analysts, so they trade cheaply in the marketplace. While some companies may have sound fundamentals and rebound, others may not. The risk inherent in value investing is that a stock’s price may fall further, take time to recover, or never recover.
At Nicholas, we search for long-term growth companies whose stocks represent good values based upon specific criterion. This enables us to keep our shareholders invested in attractively priced, quality, growth companies. Dave Nicholas has said, “We would rather buy a great company at a good price than a bad company at a cheap price.”
- Strong growth rates
- consistent earnings
- improving return-on-equity ratios
- Capable, honest management
- Low debt-to-total capitalization ratios
- Price-to-earnings ratios relative to growth rate and industry trends
- A well-established, enduring franchise or brand
- Product development
- Significant management ownership of stock
- Strategic position within the industry
- Long-term and short-term business momentum
We determine when to sell the stocks held in our portfolios by combining fundamental and valuation considerations, with technical analysis and a review of stock price momentum. We prefer to sell companies that are not performing early, and sell other holdings when we believe they have become over valued.
Our Fixed Income Philosophy
At Nicholas, we recognize the importance of a well-diversified portfolio. As a result we offer both conservative and aggressive fixed income choices. Our goal is to provide shareholders with competitive returns, while minimizing portfolio volatility, and providing a consistent stream of income.
We perform in-depth credit analysis to determine the credit worthiness of various fixed income investments. Our analysis considers the issuer’s financial resources, sensitivity to economic trends and conditions, operating history, management, and other factors.
- We focus primary credit research as a tool to identify fixed income securites we believe to be undervalued due to non-fundamental reasons.
- Our security selection process combines sound fundamental research with a disciplined valuation approach.
- We hold bonds with short to intermediate maturities, in an attempt to improve portfolio stability while pursuing competitive returns.
Mutual Fund investing involves risk. Principal loss is possible. Investing in small and medium-sized companies involves greater risks than those associated with investing in large company stocks, such as business risk, stock price fluctuations and liquidity.