Equity Focus

Y H & C Investments- Equity Focus Strategic Asset Allocation

For all investors, the process of allocating capital involves deciding what percentage of capital should go to each asset class. Y H & C specializes in placing the greatest concentration of capital in the equity asset class and that is our focus when we make decisions on where to place capital. An example of a typical strategic asset allocation for a young or middle aged investor is 60% allocated to stocks, 20% fixed income investments, 10% real estate, 5% commodities and 5% cash.

Tactical Asset Allocation

Tactical asset allocation is the concentration of capital that is appropriated within various asset categories. Y H & C specializes in the fundamental analysis of individual equity securities and the buying and selling of individual equity issues, as well as index and mutual funds that are composed of equity securities. Y H & C has the ability to analyze individual fixed income issues and fixed income index instruments, however, it is not considered a specialty. Tactical asset allocation is typically a short term shifting of assets among different classes depending on economic conditions and is seen as a way to out perform a benchmark over a short period of time. As Y H & C is long term oriented, the type of tactical asset allocation I practice involves trying to minimize short term trading.

Y H & C Investment Process

I believe that researching individual investment opportunities requires extensive work before capital is allocated. The following are the steps I try to go through when looking at unique investment opportunities, in particular individual equities in the public markets, but the process can be applied to private placements or venture capital. Mutual funds and exchange traded funds require their own analysis regarding investment process.

1. Fundamental analysis of the industry of the specific issue.
2. Competitive positioning of the individual company within its industry relative to its competitors.
3. Analysis of the past, present and future operations of the specific company, with emphasis on growth opportunities.
4. Fundamental analysis of the operating performance of the specific company- metrics like gross margin, operating margin, net margin, return on equity, return on assets, turnover ratios, inventory and accounts receivable ratios.
5. Fundamental analysis of the financial situation of the company, including balance sheet metrics like cash levels, debt levels, contingent liabilities, lease obligations, and off balance sheet arrangements.
6. Analysis of the quality of earnings of the company.
7. Analysis of the corporate governance of the company including the role of the CEO, board of directors, nominating, audit, and compensation committee structures and conflict of interests or independence of the board.
8. Analysis of the management of the company and any conflicts of interest that may exist.
9. Specific research into a company's financial filings- including annual report and 10-Q filings, along with any 8-K filings, insider trades, and recent news involving the company.
10. Valuation Analysis of the current market value of the enterprise, market capitalization, and comparison of those metrics against industry competitors and the overall market.
11. Valuation analysis of the current issue versus its operating metrics.
12. Analysis of management ownership of the equity, stock option dilution, and share buyback possibilities.
13. Analysis of free cash flow of the company versus competitors.
14. Application of the current economic environment and the effect on the specific company.

Y H & C Risk Management Philosophy

Risk management is the ability of an organization to control the totality of risks involved in managing the assets of the enterprise. For individual portfolio management, the ability to control risk by Y H & C is handled with a few different strategies. First, I create an investment policy statement to have a concrete plan entailing the objectives and constraints involved for the investor. Included in the plan is to identify the risk tolerance of the individual or entity whose assets are being invested. Second, I develop a strategic asset allocation and tactical asset allocation model which fits the risk profile of the investor. Third, I diversify the assets we buy under the allocation models. Fourth, I try to buy assets at what I consider fair prices- an asset well bought is half sold. Fifth, if necessary and appropriate for the investor, I can use options to hedge underlying positions. Finally, I am aware of risk management techniques used at investment banks and commercial banks used to control risk- strategies like Value at Risk, Scenario Analysis, Stress Testing, and limiting concentration of positions in various ways. However, given the nature of my firm, these techniques are not available to the individual investor or business. One last possible strategy is to use Monte Carlo simulations for risk management, however Y H & C does not have that capability.

Y H & C Investment Process: Sources of Information

In order to collect information on individual companies which may be candidates to include in the investment portfolio, Y H & C uses a variety of sources, including the following, but not limited to:

1. Company Annual Report, 10-K and 10-Q filings, as well as 8-K filings.
2. Company proxy
3. Wall St. Journal 
4. New York Times
5. Washington Post
6. Los Angeles Times
7. USA Today
8. Financial Times
9. Las Vegas Review Journal
10. The Economist
11. Africa Business Journal
12. Fortune
13. Forbes
14. Business Week
15. Money
16. Smart Money
17. Portfolio
18. Conference calls on the internet.