PRINCIPLES

Equity Principles

Henry Armstrong screens a large universe of companies according to a consistent set of growth and quality measures.  These principles have proved their ability to generate added value over very long periods.

We invest in very high-quality growth companies. Many of them have high exposure to fast-growing overseas markets, but shield us from direct political, currency and foreign accounting risks.

Henry Armstrong focuses on the long term. We do not allow stock market gyrations to divert us from a strategy that has worked well for more than 25 years. We therefore resist short-term performance pressure, and ignore fads and Wall Street hysteria, much of which is generated by the short-term perspectives of traders and the rapid communications of the financial media.

We avoid excessive trading or turnover. We stick with these excellent companies as long as their business delivers the results we expect. This has the additional benefit of being very tax efficient. For example, with an average annual turnover of less than 10% (compared to the U.S. average turnover of greater than 85% per year) Henry Armstrong’s clients are deferring taxes for an average of 5-8 years, and then are taxed at long-term capital gains rates, whereas clients of the average manager are paying taxes every quarter at the much higher ordinary income tax rates.  The tax headwind that the rapid traders are fighting is very difficult to overcome. The low turnover within Henry Armstrong portfolios also reduces transaction costs.

We prepare at all times for “bad weather” and we are always alert to the threat of resurgent inflation. Thus, we avoid companies that would be harmed by economic cycles because they have no pricing flexibility, require large amounts of capital to grow, or are capital-intensive.

Fixed Income Principles

Safety and stability are our primary concerns. Fixed income provides a steady income stream, and balances the portfolio.

We use Treasury securities of intermediate to short-term maturity, or very high-grade municipal bonds, when available.

We structure the maturities in a ladder over a period of years, in order to:

(1) take advantage of interest rate shifts,
(2) substantially eliminate price volatility,
(3) avoid tying up funds for a long period of time.

We concentrate risk in equity, where one can get well paid for it, and take virtually no risk in fixed income.

Perhaps just as important as What We Do is What We Don’t Do.