Macro View
MDH Investment Management's selection process begins with a macro view of world trends: social, political, economic and technological events which will impact future investment markets. We look for changes in lifestyle, demographics, and technology that can help us identify industries or investments that are creating opportunities. And we look for government actions and economic trends that are affecting the strength of national markets. By combining a knowledge of which markets are expanding with an understanding of the most progressive industries or investments within those markets, we are better able to select those investments which have the greatest long-term potential.
Equity Selection
We look for industries of two types. First, those whose expected good earnings performance indicate that they will have superior long-term market growth. Secondly, those which have had major setbacks and are entering a recovery period where over the next three years or more they will return to normal trade growth and therefore have excellent potential for large earnings increases.
Having selected industries, we then look for companies that we feel are leaders. We generally look for a rate at or above the industry rate. We attempt to find companies that are undervalued versus their peers, or valued lower than their growth rate would warrant. To further our understanding of individual companies we seek out information from suppliers, customers, and competitors, as well as industry analysts. We also look for superior management, superior cost controls, and new product capability. The companies we prefer are those who understand their place in the market and who either dominate that market already or are moving to do so.
We select specific buy and sell points in advance and decide how much of a particular stock to hold based on its illiquidity and existing portfolio mix. The sell point is based on a percentage of the purchase price or highest market value. For volatile stocks the decline we tolerate may be as much as 30 percent. For a low volatility stocks it may be only 10 percent. We rarely purchase all of our holding of a stock at one time, but average up, and watch the stock's movements closely once we hold a position.
Principled Investment
Five principles summarizing our investment strategy:
GROWTH
We look for investments whose return will outpace inflation. For stocks, this means choosing leaders within emerging or re-emerging industries. For precious metals and international equities we look for strong market appreciation potential.
INTEGRATION
We combine a macro view of world trends with a fundamental and technical analysis of specific investment prospects. First we review political, economic, social, and technological trends to find markets and industries that have the best long-term potential. Then we find the best investments within those markets and industries through a detailed review of fundamental value criteria.
STABILITY
We attempt to minimize risk by moving only when market trends are clear, and we consistently hold more cash equivalents than most money managers. In fact, we may be entirely in cash if alternative investments are unfavorable.
ADAPTABILITY
We have flexibility to move between markets and between investments. We do not maintain a fixed asset mix, but vary holdings to reflect changing market trends. Our holdings can include domestic and foreign stocks and precious metals.
PURIFICATION
We cut losses and abandon investments that at any time fall below our predefined growth criteria. We do not hold any particular position for the sake of holding a position. We feel that many U.S. Markets in the last decade will prevail into or at least the early part of the new millennium. We believe that during this time, the approach outlined here will be essential to maintain consistent, positive capital from the assault of inflation.