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 in which the investor must compete with some of the most capable people on the planet.  At Palo Capital, we believe we have the intellectual ability, the emotional discipline, and the dedication required for sustained investing success.  However, we approach investing with intellectual humility - we have learned over time 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 expect to be in that group.  If there comes a time when we cannot regularly outperform, then that is when our personal money and our client’s money should be managed by someone who can.

Equity bias.  Because equities usually outperform fixed income investments over timeframes of at least five years, we believe that portfolios for investors with investment timeframes of five years or longer should, under most market conditions, be heavily weighted towards equities.

Get the big moves right.  Investment performance is largely determined by whether the manager catches the really big moves for the market and for specific market sectors.  In 2005, for example, an investor that was overweight energy stocks almost certainly outperformed, and if not, she/he probably underperformed.  In most markets, there is at least one sector for which it is crucial to be overweight or to avoid. If you catch these sectors early, that is great, but with the really big moves, you don’t even have to be early to do very well.

Beware “style-box” limitations.  Markets rotate rewards among stocks from different investment styles and market capitalizations.  Some years, growth stocks outperform, some years value stocks do best.  Investment managers that focus on a single style or capitalization range suffer periods of underperformance when their approach is out of favor.  The freedom and ability to change “style boxes” as market conditions dictate is essential to achieving consistent outperformance through changing markets. 

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 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.