OUR INVESTMENT PHILOSOPHY
Marathon Capital Management provides professional investment management services to individuals and small institutions. Investment programs are tailored to meet individual client needs within a disciplined investment framework considerate of risk tolerance, capital preservation and long-term growth objectives.The new millennium has ushered in a period of uncertainty and volatility in the financial markets. With the advent of ETFs, electronic trading and algorithm-driven strategies, investors are increasingly subject to forces beyond their control as markets move and react faster than ever before. Layer on leveraged balance sheets, under-funded pension plans, conflicts of interest on Wall Street and global debt concerns, and is it any wonder that the average investor is overwhelmed? If past is prologue, these excesses will be "cleansed" from the system and create opportunity for investors with long-term time horizons.
What all of this points to is the need to be disciplined in your investment approach, realistic in your expectations and thoughtful as you make asset allocation decisions. At Marathon Capital Management we work closely with you to define investment objectives, risk tolerance levels, income needs, tax considerations and other variables that help shape the long-term investment framework for achieving your goals.
As detailed in the following pages, we encourage a long-term view of the capital markets and embrace a “growth at a reasonable price” equity investment philosophy. Simply stated, we look for growth opportunities with reasonable valuations and believe that over time the markets will recognize and reward superior corporate performance. For those investors who need current income or want to reduce their overall exposure to the equity markets, we employ an income strategy that uses a variety of sources to meet your capital preservation and income requirements.
Marathon Capital Management's equity philosophy is best described as "growth at a reasonable price." We believe the markets offer these opportunities in two forms: undervalued growth companies; and well-managed firms that for one reason or another have fallen out-of-favor with Wall Street, but still demonstrate attractive growth characteristics. We concentrate on company fundamentals and avoid market timing, and as long-term investors, we focus on a three-to-five year time horizon.
In searching for undervalued growth companies, we look for several key characteristics including:
Experienced management with an ownership position:
We want to establish long-term positions in successful, growing companies and consequently look for the same commitment from management through their direct equity ownership in the enterprise. This alignment of management and shareholder commitment, when coupled with industry experience, strong fundamentals and expanding margins augurs well for superior performance and enhanced shareholder value.
Expanding revenue opportunities and industry leadership:
Increasing demand is the critical fuel for growing enterprises. We look for companies that are addressing an expanding market for their products and services, and focus on firms that have superior offerings, defendable niches or specific industry advantages. We may not always own the largest company within an industry, but we look for certain leadership characteristics that will enforce a growing presence within the marketplace.
Strong financials with low debt levels:
Strong financial characteristics such as increasing returns on equity, improving margins, healthy current ratio and low debt levels are important in our analysis. We are risk averse when it comes to balance sheet structure and prefer managements that employ debt and equity capital in a prudent, accretive manner.
Attractive valuation based on fundamental and industry parameters:
While fundamental research dominates our investment process, we look at prevailing interest rates and industry dynamics to determine relative levels of valuation. Such factors as price/sales ratio, earnings yield, private market value, margin expansion, revenue growth and industry comparables are used to determine acceptable buy/sell levels.
When fully invested, portfolios will typically contain 20 to 35 stocks, with limits on industry concentration and individual equity position size. Our goal is to pay a reasonable price for a superior company and demonstrate the patience necessary to make prudent long-term investments.
For those investors who need current income or want to reduce overall exposure to the equity markets, we deploy a variety of strategies to help meet income needs and capital preservation requirements.
The two primary risks associated with fixed income obligations are the market or maturity risk and the credit risk. Because we believe bonds should generate income and not volatility, our emphasis is on investment-grade instruments, while avoiding high-yield or junk bonds where investors are rarely compensated for the degree of risk assumed. We look for attractive features such as call protection, reasonable spreads vs. Treasuries, and strong corporate balance sheets to help reduce risk and dampen volatility. We will occasionally buy bonds of less than investment grade quality, but only if we're comfortable with the credit worthiness and business prospects of the underlying issuer.
We address market or maturity risk by focusing on the secular and cyclical components of the bond market and take positions accordingly. The optimal time to increase duration is when both secular and cyclical forces are aligned toward declining yields. Conversely, we want to avoid long-term major commitments when secular or cyclical yields are increasing. We watch such trends as monetary, currency, trade and fiscal policy, as well as the economic cycle to help determine our interest rate outlook.
Fixed income plays an important role in balanced account management, and we firmly believe that equities should be owned for capital appreciation, while bonds should be held to generate income and preserve capital in accordance with client objectives. Our fixed income philosophy is risk averse and for smaller accounts we may use fixed income mutual funds to help achieve income goals.
Balanced account management is for those investors who desire current income or reduced overall volatility in their portfolio holdings. We work closely with each investor to determine the appropriate level for reserve funds, fixed income and equities based on individual risk tolerance and investment objectives. We emphasize the most basic distinction between fixed income and equities in balanced account management, which is the recognition that equities should be owned for capital appreciation and not income, while bonds should be held to generate income and preserve capital in accordance with client objectives.
Each balanced account at Marathon Capital Management has a written investment profile that details the appropriate percentage ranges for reserve funds, fixed income and equities. Shifts in asset allocations are made within these ranges in order to preserve capital or increase returns as opportunities present themselves. We continually refine our interest rate outlook to determine when capital should be moved into or out of fixed income investments. Likewise, we want to own well managed, financially sound companies in the equity portion of balanced accounts, and therefore make commitments at opportune times and within prescribed asset allocation ranges.