Mr. Martin: We are going to be 13 years old in February. We were founded in 1997 as a single-process firm focused on prudently exploiting inefficiencies in small- and mid-cap stocks. With our one process we have three types of accounts. We have small-cap growth portfolios, mid-cap growth portfolios and balanced portfolios that are a blend of our mid-cap growth stocks and fixed-income securities.
TWST: How do you define your growth investment approach? What are you looking for?
Mr. Martin: What we're really looking for is high returns over the next seven years from each of our stocks. The growth component is just one element of the expected return. The other element is the discount to the intrinsic value of the company. We often look like a value manager when we buy the stock, but we're buying companies that we think have above-average growth. This is our chosen process for yielding high returns with low turnover. We build a seven-year budget, including balance sheets and cash flows, for each of our companies. We forecast what the company is likely to be worth in seven years using reasonable assumptions for growth. We look at the stock price today, and we assume that the stock is going to trend towards the intrinsic value seven years from now. For small-cap stocks we require at least a 15% annual expected return prior to purchase; for mid-cap stocks, a 12% expected return.
Tickers included in this excerpt: ADBE, AKAM, ARMH, CAB, CAKE, ETH, EW, FDS, GENZ, GRMN, INTU, ISRG, OTEX, PLX, RL, SY, TJX, TRMB, VAR
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