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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:
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Investment goals |
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Risk tolerance |
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Tax considerations |
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Cash flow considerations |
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Investment time
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Unbiased and Independent
Management
Sharp Investments invests directly in
publicly traded, nationally listed, corporate and government
securities. As unbiased, independent portfolio managers:
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We do not sell investment
products, such as mutual funds, or insurance products |
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We do not represent any particular
broker/dealer. |
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We do not receive any commissions
or fees on investments |
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We do not invest in mutual funds,
IPOs, partnerships, commodities, real estate, uncovered
derivatives, or emerging markets | |
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Cost
Effective Money Management
In addition, Sharp Investments
minimizes investment costs to small businesses and individuals by
using:
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Discount brokers for lower
commissions |
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Common stock rather than fee-based
mutual funds |
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commission-free dividend
reinvestment plans |
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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":
- Value
Investing
- Long
Investment Periods
- Dividend
Strategy
- Dollar
Cost Averaging
- Use
of Limit Orders
- Proper
Diversification
- Long-Term
Market Timing
- Patience
and Discipline
(Definitions
below) |
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Quality Control Investing
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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. back |
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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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