Boring is beautiful at Altrius. When we purchased McDonald’s at the end of 2013, Wall Street and most investors believed the company’s best days were behind it and instead desired to focus on sexier, expensive growth stocks such as Chipotle which also don’t pay dividends. The results have played out quicker than expected as seen from the chart below. In addition, McDonald’s has steadily grown its dividend over decades enabling us to be paid to wait for its growth turnaround.
Boring - value investing with dividends – has always been and will continue to be at the heart of our investment process at Altrius. This is true even when we are outperformed by a particular index or “sexy” security as I believe absolute return is more important than relative performance. To us, providing sound risk adjusted returns (thereby potentially adding alpha and a higher Sharpe ratio) is superior than attempting to shoot the stars out investing in the next great idea such as Shake Shack.
It is why we eschew high flying fad stocks and momentum investing preferring instead to invest like an aardvark. Though I prefer Shake Shack’s burgers to McDonald’s hamburgers, it is also important for one to not confuse a particular product with a company and to only invest in companies in which the price paid is reasonable for expected potential growth.
Though value investing has had its longest period of underperformance in relation to growth since the 1930’s, I believe value investing is superior over time to chasing momentum and paying for growth at any price. Paying any price for Steph Curry (a known performer) may be a good investment; however, star players may be injured and if you don’t have enough money to put players around him, the team won’t be able to compete for a championship. Thus, understanding this significant downside risk is important when purchasing any security.
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