No matter what subject was covered in a given letter, behind each, of course, was the biased opinion of its writer. As such, you should never take what we have written as gospel. However, I believe, and have now also thoroughly indoctrinated Justin into the belief, that our approach to both business and investing is far superior to other approaches. Libby, on the other hand, has just started her training as a future investment professional, so I now have another opportunity!
Whether we are discussing the current state of the markets, or the advantages or disadvantages of an investment approach, our biases come through in favor of an approach based on our belief that investing always requires the difficult and time consuming job of determining an intrinsic value prior to committing funds. In today’s world of investment advice this is an abnormal approach. It seems the majority of financial advisors find that the effort needed to value a security has a limited payoff. I would agree that it does limit the payout to the advisor. It is much easier and more lucrative for an advisor to sell an investment to customers drawn from a menu of investment products selected by the advisor’s firm.
Phil Fisher was a great investment manager and the author of Common Stocks and Uncommon Profits, a book that is considered a classic in the world of professional investors. Once, in a discussion of policies a company could use to attract shareholders, Fisher used the analogy of a restaurant seeking potential customers: “A restaurant could seek a given clientele- patrons of fast foods, elegant dining, Oriental food, etc.- and eventually obtain an appropriate group of devotees. If the job were expertly done, that clientele, pleased with the service, menu, and price level offered, would return consistently. But the restaurant could not change its character constantly and end up with a happy and stable clientele. If the business vacillated between French cuisine and take-out chicken, the result would be a revolving door of confused and dissatisfied customers.”
You can be assured, at least for as long as the Anderson family owns and operates this business, that we will not be changing our menu. Prior to his gaining ownership in the business, Justin and I wrote and agreed upon a set of principles for operating our business. We have shared these principles in the past, but because many new families have made the decision to hire us as their investment advisor over the past few years, we felt it was the time to share them again, along with a few comments on each.
Our Business Principles
We are an investment management firm, created to continue “ad infinitum,” promoting growth and happiness to generation after generation of clients, associates and owners.
Each of us takes great pride in our families. It makes this family, the Anderson family, proud that so many of our clients have allowed us to serve their families for decades, including multiple generations within the same family. By transferring ownership of Anderson Griggs to members of my own family, I can say that I have done my part in making sure our family will continue to serve your family for generations to come.
We have committed to managing your portfolios in separate accounts designed for each of you individually. We believe this is the only method appropriate to meet the diverse needs of individuals and their families with different purposes for their savings and investments.
We must recognize that all clients have rights, and upon our recognition of these rights and our desire to satisfy them, rests our chance to succeed.
We have taken steps to ensure that your rights come first. As a firm we are a Registered Investment Advisor that carries with it the legal duty of fiduciary. This duty requires us to place your interest above ours at all times. You have the right to full disclosure of all investments you own. You have the right to full disclosure of all costs that you incur for your investment operation, including our fees and any other pass-through costs you incur. You have the right to instruct us to take certain actions on your behalf. You have a right to discuss your goals, fears, needs, results, and concerns with us directly at any time, and you have a right to tell us you no longer wish to employ us as your manager and advisor, with no repercussions.
Therefore, every business decision we make must be dependent on its relevance to the question, “Is this beneficial to our clients?” who provide us with the means and purpose to continue as a firm.
This principles guides us in many ways. Business consultants have suggested that we can increase our fees from our current rates substantially, and the total fees our clients would pay would still be less than the all-in cost of many of our competitors. Our response has been the same for the past fifteen years – we will not – because our revenues and profits are growing enough through profitable investing and the addition of new clients. This may not be true in the future, but today it is. Raising our fees just because we can is not beneficial to our clients.
To succeed then, we as owners and associates accept that any reward is directly dependent on the skill, dedication and well-being of all who contribute to our clients’ success.
We measure success in multiple ways. One of the two most important ways is by measuring the rate of return that our clients earn and keep over time. This measures our skill as portfolio managers and investment analysts. Second, we keep track of how long each client stays a client. This measures our level of service and our abilities to design, create, and maintain portfolios that produce the results each client expects. So far we have passed both of these measures with flying colors.
In recognition of this dependency our duty as a firm is to provide our clients with highly skilled and well-compensated associates and owners who are actively involved in the day-to-day duties of the firm.
Compensation is by and far the largest expense for an investment firm, including our firm. However we are a family, which gives us a little leeway in our approach to compensation. We keep our salaries low relative to our competition locally, preferring to share firm profits, which in most years has been the great equalizer. We believe this is also in the best interest of you, our clients, as it rewards us in the good years and limits our income in those bad years that come along every so often. Also, we assure you that we will not be sold to a third party who is not involved in the day to day operations of the work we perform on your behalf.
Becoming a competent investment manager requires far more than a simple license obtained by passing an exam. Much time is needed to gain the experience necessary to make sound judgments on your behalf. Once again, as a family owned operation we have the freedom to allow as much time as needed to develop these skills.
These duties to our clients, associates and owners recognize the requirements to operate our business profitably for the future without the constraints of maximizing short-term results.
No business can continue for a long period of time without generating sufficient profits. It is the primary reason we maintain a minimum family account value of $100,000. Our ability to properly manage a portfolio less than this amount, while remaining profitable net of cost, is difficult.
As a side note, families are inclusive of grandparents, children and grandchildren. We plan to stay around for many more years and would love to help your family grow and prosper.
Until next time,
Kendall J. Anderson, CFA