Kovitz Investment Management – Summer 2015 Investor Letter

Kovitz Investment Management – Summer 2015 Investor Letter

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For the quarter ended June 30, 2015, the Kovitz Investment Group® (KIG) Equity Composite (the “Composite”) decreased 1.4%*, net of fees, compared to a 0.3% increase for the S&P 500 Index. Year to date, the Composite is flat (+0.0%) versus a 1.2% gain for the S&P.

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We continue to seek and hold companies that we believe have an ability to deliver long-term value to shareholders that is not currently recognized by the market. We remain focused on identifying companies with four key attributes: (1) a commitment to maintain a strong financial position as evidenced by a solid balance sheet; (2) an ability to generate sustainable free cash flow based on one or more defensible competitive advantages; (3) management that intelligently deploys cash balances and free cash flow from operations to increase returns to shareholders; and (4) is selling at a discount to our calculation of intrinsic value. We further believe that by prioritizing these factors, our portfolio of companies will be positioned to perform better than the market in most types of economic settings.

Long-term investing means concentrating not on the daily price movements of a stock but on the value of the cash flows generated by the underlying business. By focusing on a company’s underlying fundamental value relative to its stock price and not where the stock price is today relative to a month ago or a day ago, we are using the same thought process that a prudent owner of a private business would use when making day-to-day decisions rather than simply trading pieces of paper. Owning solid businesses that you don’t over pay for has proven to be a positive wealth-generating endeavor.

Many investors have turned investing into an exercise in mass psychology, trying to guess better than the crowd how the crowd will behave. That type of thinking, besides not being very intellectually stimulating for us, would leave too much of the ultimate success of our investment performance out of our control. We believe we should be spending our time focusing on the fundamentals of the underlying business by tracking cash flow, making sure competitive advantages remain intact, and keeping an eye on how management is allocating capital. This way, our ultimate success rests squarely with us and is based on our own ability to analyze industries and businesses.

Full letter from  Kovitz Investment Management below

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