AN INVESTING APPROACH BASED ON FUNDAMENTALS
The approach of Terril & Company to investing begins with a careful assessment of risk vs. reward. It seeks to manage risk by selecting investments that, in its view, have the long-term potential to return three times the reward for the risk assumed. Terril & Co. investigates all forms of potential investments on behalf of clients – equities or fixed income (both domestic and foreign), basic materials, NYSE listed partnerships in real estate or energy, or private equity and venture capital.
VALUE OR GROWTH: SEEKING A CATALYST
Investing on Wall Street tends to be trend-driven. Often, the “follow the leader” approach leads investors – including some professional money managers who are reluctant to make independent investment decisions – to pay too high a price when buying or to sell at a price below intrinsic value. Consequently, the most frequent outcome of following “group think” mentality is investment underperformance.
At iconoclastic Terril & Company, the opposite is true. Terril is constantly hunting for investments with characteristics or catalysts not appreciated by most investors. Perhaps earnings growth is not correctly factored into the price, or the asset value and cash generating potential of an investment is not widely appreciated. In another case, the dissection of a balance sheet may reveal an asset with hidden value.
As a long-term investor (usually three years or more) Terril is willing to patiently wait until the positive, long-term fundamentals of an out-of-favor investment surface and are rewarded by the market. Its fundamental approach to investing looks for change – be it in the economy, technology or in interest rates – that will boost market value. For instance, a company may need more time to improve its cash flow or grow market share. Or, a company may have “hidden” assets that need time to emerge and be factored by the market. Terril seeks to capitalize on these situations – but only at its price. Until the level of risk reaches its investment threshold, it uses money market funds, treasury bills, short term corporate bonds and tax-free notes to produce income and protect principal.
DECISIONS BASED ON FACTS, NOT EMOTION
Terril & Company believes that discipline – or more precisely, the courage to invest apart from “the crowd” – is a key to its past investment success. Too often, professional money managers become enamored with investments that temporarily top the popularity charts. Why? First, most people are susceptible to herd mentality. It’s just much easier to buy the investments that everyone else is buying. Second, money managers know that being wrong with “the crowd” generally won’t cause clients to dismiss them. If they are wrong, alone, it may be a different story. Third, individuals chronically and grossly underestimate investment risk. In bull markets, they are drawn to buy more of what is already high in price. Conversely, in bear markets or with out-of-favor investments, they find it difficult to summon up the courage to buy what is low in price.
The disciplined approach of Terril & Company removes emotion from the investment equation. Terril has learned that more often than not, excellent long-term investments are hidden from “the crowd.” Experience has taught Terril to buy only when the price reaches its threshold – which can lead it to being “under-invested” in markets that it believes are too richly priced. Terril concentrates on consistently earning solid rates of return in both bull and bear markets, recognizing that the ability of a money manager to steadily compound earnings over the long term is a powerful wealth generator for its clients.