We believe stock research, stock selection, portfolio creation, and long-term investing drives success.
Every account managed by J.P. Marvel is uniquely designed to match the investment objectives, risk tolerance, cash flow requirements, and other needs of the client. That being said, our investment process is the same across all equity portfolios.
Stock Research, Selection and Portfolio Creation
Proprietary Stock Analysis: We spend considerable time analyzing present investments and looking for new ones. We generate new investment ideas from proprietary stock charting screens, valuation screens, company visits, analyst meetings, and industry conferences. We use this systematic method to help eliminate poor stock performers and identify excellent stock investment candidates (our “best of the best”).
Stock ownership based on favorable fundamentals: We believe that stock prices are linked to earnings growth. When earnings increase, stock values increase. Our portfolio is comprised of stocks of companies with the following characteristics: 1) an improving earnings profile; 2) a growth projection that justifies price; and 3) a current industry leadership position or an industry position poised to take leadership. We tend to avoid “concept stocks” that have yet to produce real earnings but command stratospheric valuations.
Opportunity for outperformance relative to benchmarks: We believe we can achieve outperformance relative to benchmarks by carefully selecting 30-45 of our “best of the best” stocks to each comprise 0.5%-5.0% of the client’s custom portfolio. We consider this to be the “sweet spot” target for an equity portfolio: at this target, we can achieve firm-specific diversification without diluting the power of stock winners to lead portfolio outperformance.
Income Enhancement/Downside Protection: Our portfolios are “long only” accounts that use cash to control risk and covered call options to enhance income, lower the securities’ effective cost basis, and temper the downside risk.
Maximum Capital Appreciation Potential: J.P. Marvel believes in long-term investing. We are not high-volume traders. We observe that much of a stock’s move occurs in a limited number of trading days, and excessive portfolio turnover could cause us to “miss” those key days of spectacular performance and, simultaneously, erode profits with high transaction fees.
Tax Efficiency: U.S. tax laws are written such that a long-term capital gain will always be more tax-effective than a short-term capital gain. The annual turnover ratio of J.P. Marvel accounts is typically below 20%; consequently, a client’s account is unlikely to produce significant short-term gains.