Investment Philosophy

Quality

Whether investing in stocks or bonds, our investment approach starts with quality. In times of increased volatility, investors tend to move toward higher quality equity and fixed income securities. This demand (in times of increased volatility) supports the prices of higher quality securities, making them less volatile than alternative investments.

Every stock we purchase for our clients must first pass through "The Quality Door." The question at that door is this: "Would we be willing to loan this company $100,000 for ten years with no opportunity to recall the loan and no recourse, other than the fortunes of that company, to collect our money?" A positive answer to this question leads us to start our decision-making process with an elite group of financially strong companies.

These exceptionally strong companies have proven to be less volatile and that they can hold up through the tough economic conditions that will undoubtedly come.

Equities

Dividends Matter

In most of the investing world, dividends don't get much attention. At DCM, dividends matter; they always have. First, dividends give us one of the best ways of determining a company's financial health. Second, dividends let us share in the company's current prosperity by paying us a portion of today's earnings – the company treats us like real owners. Finally, dividends give us a meaningful way to calculate a company's true value.

In fact, at DCM we invest only in companies who pay generous dividends, have a track record of consistently raising those dividends, and have every likelihood of continuing to increase those dividends.

A Long Term View

Benjamin Graham, who taught investing to Warren Buffett, said, "In the short run the market is a voting machine (a popularity contest), while in the long run it is a weighing machine (a measure of value)."

We begin every investment as if we plan to own it forever. Adopting this attitude directs us toward quality companies, companies who treat us like real owners, and companies who share their earnings through dividends. Since the stock market takes such a short-term view of investing, it also creates opportunities to purchase some wonderful companies at great prices. When they run into temporary difficulty, as all companies do, the market regularly reduces the stock prices for quality companies that we know will grow successfully for decades to come. This creates low-risk opportunities to enhance long-term returns for our clients.

Occasionally, it takes quite a while for the market to recognize these undervalued situations. Our long-term view allows for these times when patience is needed, and our investors continue to benefit from the dividends our companies are paying – and increasing.

Valuation, Valuation, Valuation

Based upon the cash flow it can generate for its owners, every business has a true, or intrinsic, value. Any investor who purchases stock in a company without knowing its intrinsic value puts that investment at significant risk. The only hope of profiting from such an approach may be to find a bigger fool to buy the stock some day at a higher price. We feel it is less than responsible for us to invest our clients' assets without knowing the intrinsic value of every security we purchase.

DCM uses proprietary models for stock selection. Most of those models focus on understanding whether companies are priced higher or lower than their intrinsic values. When the market's short-term view of a company prices it well below its intrinsic value, it creates a buying opportunity for us. On the other hand, our sell discipline includes selling, or at least taking profits in, companies that the market significantly overprices relative to their intrinsic values.

Fixed Income

While DCM has a wealth of experience in managing bonds and, like most bond managers, closely follow economic trends and developments, three important factors have benefited our clients over the years:

1. Quality. We rarely get surprised by the fixed income securities we buy because we stick with high-quality issues.
2. Patience. Unlike fixed-income mutual funds, DCM does not have to buy and sell as money flows in and out of the fund. Because we deal with each client's account individually, and because we buy only individual bonds, DCM is able to operate patiently, buying or selling bonds only at those times when it appears most advantageous for our clients.
3. Tough Shopping. DCM is a tough shopper. A handful of bond dealers from around the country have been authorized to call and offer us bonds. Each day, we compare the prices those dealers offer with the prices that similar bonds are selling for elsewhere and what our calculations show they should be worth. These dealers know the standards to which we are holding them, and therefore, bring us their best deals.

In the end, experience, sticking with quality securities, remaining patient, and shopping with a keen eye and a measure of discipline has yielded returns for our clients' fixed income portfolios.