Economies, markets and individual companies are exposed to a myriad of cycles. Those cycles can include interest rates, commodity prices, regulatory changes, taxes, competitive behavior and many others. The human mind and most investors are predisposed to extrapolate recent trends. This linear thinking in a world that is inherently cyclical creates wonderful investment opportunities for investors who understand cycles and can anticipate change before it is obvious.
Stock prices fluctuate much more than the underlying value of a business. This volatility can be exploited by trading around core positions.
Long-term value creation is heavily dependent on capital deployment. Most investors are laser focused on what a company will earn in the next quarter or year. We believe that how those profits are deployed is just as important as having earned them in the first place. History is replete with “strategic” acquisitions that often fail to produce acceptable economic returns. Managements should be questioned on how they evaluate the relative attractiveness of their various capital deployment options.
It is a false choice to invest in either growth or value. The optimal investment is a structurally advantaged growing business that can be purchased at a value price. There are two sides to investing - what you get and what you pay. Both are important.
Management matters: strategy, motivation, track record, goal setting, and capital deployment.
Maintain flexibility. The only constant is change. Accordingly, a flexible approach with a liquid portfolio enables the portfolio manager to adapt to changing circumstances.
These statements are included for illustrative purposes only, do not comprise an investment program and are not intended as a complete description of Skylands' investment philosophy.