The Opportunity. In a perfect world, a company’s stock price would reflect all available information on the company, analysts would be all-knowing and impartial, and investors would not be driven by personal biases. In this perfect world, there would be no taxes or commissions, and—like the legendary residents of Lake Woebegone—all investors would be above average.
In reality, investors are driven by their emotions, which can lead them to fall in love with a “story stock” or believe that an analyst can predict earnings for the next ten years. In reality, analysts have their own biases and often change earnings estimates and target prices for stocks when it is too late to act. In reality, imperfection and inefficiency in the markets lead to opportunities for the disciplined investor.
Our Value Approach. Discipline is not easy, but it is the bedrock of our methodology, and the reason our clients work with us. While discipline means different things to different people, for us it is the systematic application of our rigorous investment philosophy and process. We are disciplined in how we measure value, when we add a new investment, and when we sell any holding in our portfolio. Our focus on the investment process translates to unemotional decision-making and outperformance.
Value. At Osher, we identify and invest in undervalued stocks. We begin with the premise that over the long term, fundamental factors such as earnings, leverage, and management effectiveness drive shareholder value. We then determine whether a stock is attractively priced relative to those fundamentals. A company might have a strong balance sheet, but if the stock price already reflects that information, then the stock is not appropriate for our clients. In other words, a good company is not always a good investment – its returns will depend on the price we have to pay for it.
Buying and Selling. At Osher, our portfolios consist of 25-30 positions. We do not look for momentum stocks, and we never buy a stock unless it satisfies our screening criteria. Before we buy a stock, we already know what factors will need to change in order for us to sell it. This is where discipline comes in – we do not fall in love with a stock or company; instead, we continuously focus on our process and the company’s fundamentals.
We do not try to replicate any index. Instead, we prefer to uncover and buy undervalued securities, and then sell them after their value has been recognized by the market. While this approach may lead to making difficult decisions, like investing in beaten down stocks or out-of-favor industries – decisions that often go against the generally accepted popular trends of the day – over the longer term, it leads to significant outperformance. As we wait for the market to recognize the intrinsic value of our stocks, we monitor the portfolio for any fundamental changes and maintain our discipline in all buy and sell decisions and in all market environments. This is the key to our success.