To help you understand how we think about investing, here are some of our core investing beliefs:

Respect the market.  Investing is an exceptionally demanding endeavor which requires competing with some of the most capable people on the planet.  At Palo Capital, we believe we have the intellectual ability, emotional discipline, and dedication required for sustained investing success.  However, we approach investing with intellectual humility - we have learned that whenever we think we have the market figured out, the market always teaches us a new lesson.

Don’t settle for average performance.  Despite how difficult it is to beat the market averages, there are always investment managers who regularly outperform the market.  At Palo Capital, we have been in this group.  If there comes a time when we cannot regularly outperform, then that is when our personal money and our clients’ money should be managed by someone who can.

Invest clients’ money as you invest your own.  An investment manager should always ask “Am I willing to make this investment with my own money?”  Palo Capital principals own almost every stock chosen for client portfolios which helps keep a tight focus on investment results.

Don’t be limited to a single investment style. Markets continually change as to the investment styles and tactics that are best rewarded. Some years, growth stocks outperform, other years value stocks lead.  Investment managers that limit themselves to a single style suffer periods of underperformance when their approach is out of favor.  The ability and freedom to change styles and tactics as market conditions dictate is essential to achieving consistent strong performance. 

Seek contrarian approaches. Sir John Templeton observed: “It is impossible to produce superior performance unless you do something different from the majority.”  At Palo Capital, our portfolios commonly overweight stocks that have limited Wall Street attention.  We continually ask “what could go wrong (or go right) that investors aren’t expecting?”  We aren’t afraid to have our sector weights diverge from that of the benchmark.     

Avoid the instinct of the herd.  Both markets and individual stocks experience periods where they are overly loved or overly hated.  Successful investing requires an ability to recognize these extremes and to act against the instinct of the herd (to “be fearful when others are greedy, and greedy when others are fearful” in the words of Warren Buffet).

Focus on the long-term.  In the short term, markets and stocks bounce around for reasons that are mostly unpredictable.  It is easier and much more profitable to focus on where a company will be in a few years than where a stock will be in a few weeks or months. 

Focus on after-tax returns.  After-tax-returns are what smart investors care most about at the end of the day.  Investing strategies should make the taxman our partner on our losers, but let our gains compound as long as possible before sharing them with the government.