Investment Approach

Palo Capital's Investment Philosophy

Individualized Solutions

Palo Capital offers a range of investment strategies though which we provide investment solutions individualized to each client’s needs for:

  • Growth
  • Income
  • Capital preservation.

Proprietary, In-House Investment Process

While many investment advisors effectively “outsource” the investment process to third-parties through mutual funds or other vehicles, Palo Capital’s core competency is its research-driven investment process.  This enables us to effectively invest assets primarily in individual issues, avoiding the layered fees and tax inefficiencies associated with mutual funds.

Investment Approach: Quality at a Discount

Palo Capital’s investment approach is based on a multi-year, empirically-driven research effort to develop a process that targets:

  • Attractive long-term returns
  • Consistent performance relative to benchmarks
  • Protection against drawdowns during weak market periods.

The heart of Palo Capital investment’s process is a quantitative method for rating stocks which we call “Quality at a Discount”.  This method targets quality companies whose stock prices offer good value at an acceptable level of risk.  This process entails quantitative assessment of metrics for the following factors:

  • Quality factors: financial productivity, margin consistency, business momentum
  • Value factors: multiples of "owner earnings," shareholder yield, etc.
  • Risk factors: operating and financial leverage, profit margin variability, stock price volatility.

Investment styles are commonly characterized as either “growth” or “value.”  Palo Capital’s Quality at A Discount  (“QAD”) method combines elements of both the growth and value styles.  However, the added emphasis on metrics for “quality” introduces a more consistent return profile in comparison to either the growth or value styles based on our research and our results with QAD.

Palo Capital’s equity strategies implement QAD in different ways, with the Core Equity strategy being the purest implementation of the QAD process.

Investing Insights

  • Long term, the market may be efficient, but in the short term, it is not.  Securities gravitate toward fair value over time, but deviate in the short run due to investor emotions and analytical errors. Legendary investor Ben Graham probably said this best: "In the short run, the market is a voting machine but in the long run it is a weighing machine.
  • Corect investment moves are often counterintuitiveInterpreting widely known information in a way that differs from the consensus - but turns out to be correct - is difficult. Palo Capital’s quantitative orientation helps us stay objective and rational. That said, we have learned that our best moves are often the ones that we and our clients most question, while the seemingly obvious and “easy” trades don’t work out nearly as well.