The Process

If the idea is right, eights and quarters won’t matter.

Gary B Helms. Conventional Wisdom Codification, FAJ 1978.

Our process emphasizes the management of risk.  Risk, in our opinion, is the permanent loss of capital, not volatility.  We make all investment decisions with a thorough understanding of downside risk.  Outperformance, should it occur, happens not by always picking the best performing asset but rather by not losing money at points of maximum pessimism.  We manage risk by investing with managers that focus on valuation and insist on never paying more for an asset than it is intrinsically worth.  We also invest with managers who have the courage of their convictions and have proven not to be susceptible to outside pressures or emotions.

One of the more difficult, yet important, aspects to our process is how we look through the portfolio holdings of a fund.  We do not take things at face value and thus we seek to understand, deeply, what we are buying.  As part of our process we will take a portfolio apart and analyze the underlying, individual securities that are contained within.  We perform our own qualitative and quantitative analysis.  This in depth research helps us ensure that the stock meets the guidelines with which the manager invests our money.  It provides us with the knowledge that the manager is doing what they are saying.  If we can neither reach the same conclusions nor understand why a stock is in the portfolio we will not invest our money with them. 

  • Step 1 - Structural Analysis

    We first review the structure of the firm and look for an alignment of interest. An important question we ask is, “Why would we buy a product from a company that is unwilling it own it themselves?”  In other words, we are looking for managers that believe in the strategy they are running.

  • Step 2 - The Five P's

    Next we review the five P’s: Philosophy, Process, People, Portfolio, and Price.  We want to make sure the right people are enacting a philosophy we believe in with the proper process in order to build a reasonable, value-oriented portfolio. The underpinning part of this analysis is to find high quality managers and purchase their funds at attractive pricing. 

  • Step 3 - Review Past Performance

    Lastly we review past performance.  Poor performance may indicate a badly executed strategy, however, lagging past performance may also indicate the portfolio is cheap and an excellent time to buy.  What we do not do is purchase investments simply because they have experienced excellent past performance.  

Generally, our process analyzes an investment management firm to answer the dual questions of whether or not this manager matches the values held by Wright Associates and whether or not we believe the strategy will work over the long-term. The goal of our process is to identify a set of managers that are complimentarily in a portfolio. We want to be assured that they will exhibit different patterns of returns.  We buy these securities in client accounts when the underlying portfolios appear attractively priced.