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