Common Stocks

SSI believes that its clients are best served, in the long term, through investment in common stocks of American companies. Although some investment managers champion the beneficial aspects of investing in foreign stocks (i.e. diversification, exposure to foreign growth), SSI believes that information flow and regulatory oversight are often inadequate overseas. The American equity markets provide substantial opportunity for diversification and growth, without additional risks and uncertainties presented by foreign equity markets.

SSI focuses on common stocks of medium to large size and capitalization. SSI believes that with investment in smaller companies comes greater risk, more uneven earnings and growth, and the danger of inadequate liquidity in the markets. Investment in medium to large stocks provides the opportunity for growth, while limiting the risks presented by illiquid, financially more uncertain smaller companies.

In analyzing companies as potential investments, SSI emphasizes traditional, fundamental research and analysis. Although macroeconomic factors such as interest rates, inflation, fiscal policy, and monetary policy are all closely monitored, SSI believes careful research into the fundamental aspects of each individual company is required to discover opportunities for extraordinary returns. Fundamental research involves review of all important company reports and news releases, scrutiny of the industry within which each company operates, consideration of current events affecting each company and its industry, as well as analysis of SSI and third party research reports. SSI firmly believes that superior investment performance becomes more likely with comprehensive, disciplined analysis of outstanding companies, one by one.

SSI adheres to the premise that investment, as opposed to speculation, requires a long term time horizon and a great deal of patience. Although SSI will engage in short term trading to take advantage of temporary pricing imbalances in the markets, the firm will adhere primarily to a strategy of buying and holding outstanding American companies for long term performance. The substantive result of an investment in common stock is not a certificate; it is actual part ownership in an American business. Owning stock in great companies will reward patient investors in the long term.

While results will vary from year to year, great companies typically produce superior investment performance over extended periods of time.

Additionally, taxes are of preeminent importance to the typical SSI client. The current tax differential between short term capital gain versus long term capital gain is almost 2:1 for an SSI client in the highest IRS tax bracket. SSI will always consider the tax ramifications of its investment decision-making, and will err on the side of establishing a long term holding period for securities, as opposed to recognizing short term gain and paying an excessive tax rate.

Among the many corporate characteristics considered by SSI prior to investment are the following:

  1. Level of corporate debt
  2. Stock price as a multiple of [a] annual sales, [b] earnings, and [c] free cash flow
  3. Corporate return on [a] assets, [b] investments, and [c] equity
  4. Stock dividend yield and record of dividend increases
  5. Any formal corporate program for the repurchase of common stock
  6. The company's industry and its competitive position therein
  7. The company's management - experience, expertise, and reputation

Fixed Income Securities

Fixed income securities (bonds) are attractive investment complements and/or alternatives to common stocks for safety of principal, income, and tax-related planning (municipal securities). In selecting fixed income securities for client portfolios, SSI focuses on Treasury securities, corporate notes and bonds, municipal securities, government agency securities, and secondary market mortgage-backed securities. SSI's goals for investments in fixed income securities are four-fold: safety; income; mitigation of interest rate risk; and adherence to tax reduction strategies. SSI accomplishes its goals through purchase of investment grade fixed income securities, with varying maturities to reduce interest rate risk. For clients in the highest tax bracket (39.6%), SSI focuses primarily on the purchase of high quality municipal securities so as to maximize after-tax interest income.