Investment Approach & Principles

1)

Owning equities is owning a piece of a business. The results of the business will determine our financial success. We are partnered with many great business leaders, and look to find others who are working to become excellent.

2)

Clients and Y H & C are in the same boat. We own the same companies and we want the best businesses. We own entities where management has a big financial interest as well, meaning large skin in the game. We eat our own cooking.

3)

Do our analysis and research before we own the stock. The time to understand the risks and potential rewards of the company is before we buy it. As time passes, actively monitoring what is taking place is part of being an informed investor.

4)

A comprehensive understanding of the history, management team, financial position, and competitive situation of any company we buy. Knowing what you own is crucial in handling the volatility of public markets.

5)

Owning great companies, great assets, or situations where a management team is actively working on reaching this destination. Find and participate in situations where the business controls their own destiny by growing profits, buying back the stock when it is cheap, acquiring other companies, or having advantageous financing or tax attributes.

6)

Both patience and assertiveness are necessary for success. Understanding markets are volatile and there are moments where a better understanding of a specific situation leads us to taking advantage of poor circumstances or negative investor sentiment. This principle includes merger arbitrage events.

7)

When we have success, recycle the capital into income generating assets. We don’t want to give back our profits. We use the increase in capital to reinvest in assets which generate income so we benefit. It is especially useful in tax advantaged accounts.

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Investment Management

At Y H & C, we aim to earn the highest returns possible with the majority of investments in the common stocks of growth companies, knowing that value and growth investing are intrinsically linked. Targeted investment planning involves researching individual investment opportunities extensively before capital is allocated. As a financial advisor, I look for unique investment opportunities, typically individual equities in the public markets. Here is a little more about the process of my comprehensive analysis of a potential investment:

Research corporate governance, management, company filings and recent presentations, conflicts of interest, company financial results, and current market value, market capitalization, and comparison of those metrics against industry competitors and the overall market

Analyze past, present, and future operations of the prospective candidates, with emphasis on growth opportunities, the cash generation capabilities, and the capital intensity of the business

Know the operating performance of a company, including important metrics like gross margin, operating margin, net margin, return on equity, return on assets, turnover ratios, inventory, and accounts-receivable ratios

Understand current the economic environment, its effect on the company, and the finances of the company, including balance-sheet metrics like number of shares outstanding, different classes of stock, cash levels, debt levels, debt maturities, tax assets and liabilities, contingent liabilities, lease obligations, and off-balance-sheet arrangements

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Account Choices

Custom portfolios that are low-cost, tax-efficient, and managed with your personal preferences and tolerance for risk in mind.

Separately Managed Accounts

The standard account type and it is usually a taxable account.. It can be an individual account, a trust account, or a joint account.

Business Retirement Accounts

These are accounts used for retirement planning and are usually created by business owners, called sponsors. The different account types include Solo 401k’s, 401k’s, Profit Sharing Plan, SEP Plan, and a Cash Balance Plan. Each has their own strengths and are of great benefit for tax planning and efficiency.

Qualified Accounts

Sometimes known as a tax advantaged account, there are a variety of account types, which include the regular IRA, the Roth IRA, or the Rollover IRA. IRA means individual retirement account. A 403B plan, used for those in educational and government related fields, is also available. Typically, these accounts are used in conjunction with understanding a client’s financial situation. In many cases, they are quite helpful for tax efficiency.

Risk Management

My role as your financial advisor is to control the risks involved in managing assets as much as possible. Creating an investment strategy detailing the objectives and constraints involved for the investor is a critical component to wealth management. In order to match your investments to suit your situation, we will:

Identify your risk tolerance

Buy assets at fair prices

Diversify assets according to the allocation models

Diversify with non correlated assets in a variety of industries

Use strategic and tactical asset allocation which fits the risk profile of the investor

Use options, foreign currency, and indexes to hedge underlying positions

Investment Process
Focus on Small Companies

Y H & C Investments owns positions in small, publicly traded companies for these reasons: With ownership of smaller companies you own pieces of a great business without having as much competition as with larger companies. Often, 25 different analysts from investment banks and mutual funds follow large companies. There is more volatility in the price of smaller companies.

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Y H & C Investments owns positions in small, publicly traded companies for these reasons:

1) With ownership of smaller companies you own pieces of a great business without having as much competition as with larger companies. Often, 25 different analysts from investment banks and mutual funds follow large companies.

2) There is more volatility in the price of smaller companies. Inefficient markets are where the best situations are found.

3) There are more opportunities with small companies because the majority of all public companies are small.

4) Fewer investors are able, or willing, to take large ownership stakes of small companies.

5) Owning small companies is a good risk management tool. It diversifies into assets which have low correlations with the overall market.

6) Finally, and probably most important, when you are successful with one small company investment, it can have a tremendous impact on your overall returns. We are investing in small companies with the thesis we are ahead of the pack. As they become bigger, more investors will want to be involved.

2) There is more volatility in the price of smaller companies. Inefficient markets are where the best situations are found.

Investment Process
Asset & Security Selection

The foundation of the investment strategy is to own the highest quality companies which have historically proven they create shareholder value over long periods of time. We also select companies who are investing in their businesses to become value creators in the future. The entities do this in a variety of ways. The characteristics of these companies include the following:

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The characteristics of these companies include the following:

Operationally Efficient
Strong Cash Flow and Free Cash Flow Generators
Large Total Addressable Markets
Unique and Highly Profitable Business Models
Irreplaceable Industries and/or Assets
Industry Leadership and Strong Competitive Position

As a way to help generate superior returns, the second portion of the investment strategy is based on identifying and capitalizing on specific opportunities where the market has incorrectly priced an asset. These situations usually are unique, but many revolve around the following areas:

A critical intersection in an industry
A turnaround or a financial engineering situation
Sum of the Parts Mispricing
Changing Efficiency of Operations
Merger arbitrage or event driven circumstances (spinoff)