Sharp Investments


Philosophy

Sharp Investments investing philosophy and success is based on four main principles:

Personalized Portfolio Management

At Sharp Investments, we recognize that placing your life savings with an investment manager is a matter of trust. We work to earn your trust by understanding your investment needs. Our portfolio managers provide personalized portfolio management to clients through an in-depth analysis of:

Investment goals
Risk tolerance
Tax considerations
Cash flow considerations
Investment time horizons

Unbiased and Independent Management

Sharp Investments invests directly in publicly traded, nationally listed, corporate and government securities. As unbiased, independent portfolio managers:

We do not sell investment products, such as mutual funds, or insurance products
We do not represent any particular broker/dealer.
We do not receive any commissions or fees on investments
We do not invest in mutual funds, IPOs, partnerships, commodities, real estate, uncovered derivatives, or emerging markets

Cost Effective Money Management

In addition, Sharp Investments minimizes investment costs to small businesses and individuals by using:

Discount brokers for lower commissions
Common stock rather than fee-based mutual funds
commission-free dividend reinvestment plans
Low cost SEP/SIMPLE retirement plans for small businesses

Lower costs mean greater returns for the Client!

Quality Control Investing

Sharp Investment portfolio managers use long-term, historically successful strategies to provide superior returns. We call this the "Quality Control Portfolio Management":

  1. Value Investing
  2. Long Investment Periods
  3. Dividend Strategy
  4. Dollar Cost Averaging
  5. Use of Limit Orders
  6. Proper Diversification
  7. Long-Term Market Timing
  8. Patience and Discipline

(Definitions below)

 

Quality Control Investing

 
1. Value Investing

Value Investing is the art of selecting securities that are selling for less than their intrinsic economic value. Value stocks are frequently unpopular, out of favor companies with some sort of perceived problem that makes them repulsive to most investors. Conversely, growth stocks are popular, high growth stocks that are priced at a premium and have usually performed well recently. Stocks that are popular, glamorous, and have great prospects are widely followed and purchased, garner lots of attention, and are attractive to the vast majority of investors, who love consensus. Stocks that are unpopular, boring and have poor prospects are neglected, get little attention, and are repulsive and uninteresting to the majority of investors. While popularity can change overnight, unpopularity usually takes a good part of a market cycle to reverse itself. Buying a value stock means possibly having to wait for several years in order to see the reversal.

The reward? Value stocks have returned 18% annually over the last 60 years, compared to 10% for the market in general and 7% for growth. The moral: A great company is not always a great investment, and a poor company is not always a poor investment. Too many investors fail to recognize this.
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2. Long Investing Periods

Long Investing Periods can be used to minimize transaction costs and maximize the compounding effect over time. The stock market is a 50/50 gamble in the short run (a random walk). However, in the long run the results are biased in the favor of the investor. The reason for this is due to the infinite maturity of common stock. Therefore the longer a investment is held, the better the odds become that this investment will do well and the longer the investor delays paying taxes.

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3. Dividend Strategy

Dividend Strategy In theory, companies that defer payment of dividends to investors in order to reinvest all earnings compensate investors through appreciation of their ownership (capital gains). In practice, over the last 100 years, companies that pay dividends have had the same or greater capital appreciation as those that defer dividends. Dividend reinvestment plans increase portfolio returns. Many companies allow investors to buy securities directly from them at a significant discount with no commission on reinvested dividends and discounted prices on reinvested funds. Since historically almost half of all portfolio returns are from dividends, investors using dividend reinvestment plans pay zero commission on half their gains.  

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4. Dollar Cost Averaging

Dollar Cost Averaging
is a buying strategy that involves putting a set amount of money into the market every week or month. This gives the investor more shares when the market price is low and less when the market price is high. This strategy takes advantage of the random nature of the market, buying less shares in overvalued markets and more in undervalued markets. This strategy also allows an investor to slowly establish a position in a security while continuously evaluating the opportunity. Usually 5 or 6 equal purchases can be spread over a 3 to 6 month period. If the security experiences a problem before the purchases are completed, the investor doesn't experience the same loss as if they plopped down the entire amount in a single purchase.

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5. Limit Orders

Limit Orders can be used to buy securities at significant discounts to market prices. Limit orders are orders to buy a security only if it reaches a specified price. A properly orchestrated combination of limit orders set below the market price can add significantly to portfolio returns. It should be noted that limit orders involve making a low bid on a security, which doesn't guarantee the purchase of the security as a market order would. But the limit order can be set with a high probability of making the purchase at a discounted price. Since security prices in the short run are almost completely random, it is a simple process to set a limit order below the market price and purchase the security at "wholesale" prices rather than "retail" prices.

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6. Proper Diversification

Proper Diversification can be used to minimize risk while still allowing appreciating securities to dominate a portfolio. Diversification can eliminate non-market risk from a portfolio, that is, risk associated with owning a particular company. Diversification is not the same as the number of investments held in a portfolio. Diversification is minimizing the correlation between each investment held in a portfolio. When properly chosen, the first ten securities in a portfolio diversifies away over 97% of the non-market risk. This allows enough securities in a portfolio to minimize the risk without reducing the effect winning stocks have on total portfolio returns.

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7. Long-Term Market Timing

Long-Term Market Timing can help determine if a market is generally over or undervalued. Proprietary econometric models are used to indicate what helped contribute to winning investments in the past under various market and economic conditions. Trying to predict anything in the market short term is almost impossible, but there are some repeated historical long-term trends that can be applied in various situations. However, no one can tell when a market will change from over to undervalued or vice versa. Determining that the market or an individual security is generally over or undervalued simply gives us a guideline on how aggressive or conservative to be with current investing strategies.

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8. Patience and Discipline

Patience and Discipline are required to suppress the gambling "get rich quick" mentality that human nature so readily embraces. There is no free lunch, no such thing as a risk free money making investment. The essence of gambling is taking on risk for risk's sake, i.e. taking on risk when the odds are stacked against winning. On the other hand, true investing means only taking on risk when the odds are stacked in favor of winning.

Investors must block out the urge to listen to experts, brokers, and anyone whose opinion isn't based in fact. With millions and millions of "experts" freely offering their opinions, an investor can find support and explanation for buying, holding, or selling every investment in the world. Anyone who professes to be able to predict "sure things" is suspect. Investing is a matter of probabilities and long-term outcomes. More credibility should be granted to those who admit they can't predict short term than to those sure that a certain event will unfold in a certain manner. Sometimes investors must go against the crowd to make money. It can be very lonely, but very lucrative, to go against the current thinking of the day. Historical perspective often proves much more valuable than the current consensus. Popular opinion often assumes the most dangerous five words in investing; "Things are different this time".

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Sharp Investments, Inc
503-520-5000
info@sharpinvestments.com