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Core Portfolio

Our Core Model Portfolio is the implementation of our stock selection process with the client's Investment Policy as a guide, culminating in a portfolio of 10 - 35 stocks. The following two approaches (managed as two separate portfolios - Relative Value and Choice - until 12/31/2008) combine to form the primary equity investment vehicle for our clients:

Aproach #1): The Core model portfolio invests in the common stocks of U.S. based companies of all sizes but is concentrated in medium and small capitalization stocks. This marks the approach formerly referred to as the Relative Value Model Portfolio.

Starting with our Focus List, we select the securities of companies that have extremely strong quantitative characteristics.  We then proceed to score and rank companies based on these quantitative factors which include both fundamental and technical factors.  Companies that are above a baseline score are considered for the Core portfolio.  The weighting of each position is based on a combination of qualitative, quantitative and valuation characteristics.  The resulting portfolio will have a price-to-earning ratio and/or an enterprise value-to-EBITDA ratio that is lower than its benchmark index and a return on equity and/or return on invested capital that is higher than the index.

Approach #2): The Core model portfolio also invests in the common stocks of U.S. based companies of all sizes but is concentrated in large and medium capitalization stocks. This approach was formerly referred to as the Choice Model Portfolio.

Starting with our Focus List, we select the securities of companies that have extremely strong qualitative characteristics.  In some instances companies under consideration will not have made our Focus List because their quantitative measures may initially disqualify them from consideration.  In spite of this we will add these companies because they have a compelling business model, have superior management, or have extremely bright future prospects.  In most instances, these companies will have strong cash flow, high returns on equity, reasonable debt, strong competitive advantages and management that is shareholder oriented. In more rare instances, the company in question may show tremendous upside investment potential without showing current financial profitability.

While some of the companies we select may be considered traditional ‘value stock’ companies – low price-to-earnings, low price-to-book – this approach will undoubtedly lead us to investment in many companies considered to be ‘growth stock’ companies. While we will not chase returns, we will also not become hogtied to investing in a certain kind of company or industry. Our second approach allows us this freedom. The Core portfolio will be made up of great companies purchased at attractive prices.

International Investments: Our preference is to avoid placing international securities in our Core portfolios.  Simply stated, accounting standards are more uniform and domestic companies report their financial status more frequently.

Our clients will however receive some investment return from international sources.  Of the many companies that appear on our Focus List of stocks from which our Core portfolios are built, internationally generated revenues account for a significant portion of total revenues. Additionally we invest in internationally based ETF funds in our Balanced portfolios.

Portfolios: Balanced >>

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