An Introduction to Martin Capital Management
Martin Capital Management (MCM) is a privately owned investment advisor registered with the Securities and Exchange Commission. Since 1987, we have remained committed to a fiercely independent, risk-averse, concentrated, value-oriented investment philosophy. Long-term compounding of capital is our ultimate goal, achieved by following the cardinal principles of preservation first, growth second. Making money begins with not losing it; accordingly, we seize the opportunity to invest only when we find companies or other investments that are underpriced by the markets. We measure growth of capital in absolute terms, not on a relative basis which seems to have become the industry standard.
MCM has thus steered many clients through turbulent times while still growing their capital. Over the "lost decade" of 2000-2010, a period that included two of the three most devastating bear markets since the 1930s, MCM's Total Account Composite* saw an 85.52% cumulative return while the S&P 500 Index returned just 4.60% cumulatively. The MCM results are all the more noteworthy when viewed through the prism of risk aversion: The MCM Total Account Composite was not more than 70% nor less than 25% invested in stocks during that time. While the S&P 500 fell 37.00% in 2008, the MCM Total Account Composite - heavily in cash (U.S. short-term Treasuries) during that period - dipped only 6.97%.
The MCM track record came from adherence to our stated principles: We reduced our equity holdings in favor of cash as the markets overheated; then we went bargain hunting during periods of anxiety-driven selling. As a result, the MCM Total Account Composite was already seeing new, higher levels of cumulative capital value less than a year after the market carnage of 2008. The liquidity of our portfolio made it possible for us to buy mispriced equities at depressed prices during the panicky phase of the sell-off, and resulted in a 20.90% gain in 2009.
Our preference is to purchase equity shares of well-run but mispriced companies. At MCM, we believe markets can and do make mistakes in pricing. Consequently, we further assert that quality research can turn stock price volatility into opportunity, not risk. Finding those mistakes (read: opportunities) requires diligent, rigorous, process-driven analysis. Our skilled research team gauges a company's intrinsic value by carefully studying the business and those who manage it, knowing that stock price normally gravitates toward that underlying value over time. Buying at bargain prices increases the probability of outsized returns while reducing the amount of loss in the event of judgment errors, thus effectively improving our odds of long-term positive outcomes.
MCM limits (or concentrates) the number of equity securities held in an effort to build a portfolio representing only our best ideas. For each, we weigh three signature characteristics: 1) A long-term competitive advantage in a strong and growing business or industry, 2) Dedicated, competent, and shareholder-oriented management, and 3) A bargain purchase price, the one variable we can control by being patient. The search for these standout equities is not style-box limited. We cross asset classes investigating small-cap, mid-cap, and large-cap companies alike to find the relative few that fit our selective, value-based criteria.
At the same time, MCM employs flexibility - at times holding large amounts of the portfolio in cash as a hedge against macroeconomic threats and/or overvalued markets. We are convinced of the importance of synthesizing bottom-up research (scrutinizing individual industries and companies) with top-down vision (scanning the broader economic landscape for hazards and opportunities). Those with too narrow a focus can be blindsided by a financial collapse like 2008; those with too broad a focus often become gun shy - fearful to pull the trigger and buy, even when opportunities arise. Between these unproductive extremes, MCM seeks what Aristotle described as a "Golden Mean" - a virtuous balance that can produce long-term success in investing.
At MCM, we believe the hallmark of the few truly great investment managers is temperament. We are very often at odds with the crowd - and perfectly comfortable in that position. The harsh reality is that we will be destined to be average if we think and act like everyone else. Thus, our clients tend to be those who have the discipline and patience to see "winning by not losing" as the first step in making money. The second step is painstaking research to find - and buy - what we believe are mispriced securities. The goal is not to have the highest return today, this week, this month, or even this year; it is to preserve and compound wealth over the long haul. If this sounds like an investment strategy well suited to your own temperament, I welcome you to join us.
*Disclosure: The MCM Total Account Composite is comprised of all discretionary, fee-paying, separately managed portfolios with initial assets greater than $1 million. The stated performance figures comply with GIPS (Global Investment Performance Standards) and have been externally audited for accuracy and compliance. MCM Total Account Composite performance figures are net of all management fees and include the reinvestment of all income but do not reflect the effect of taxes. The MCM Total Account Composite is compared to the S&P 500, an unmanaged market-capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to signify U.S. equity performance. S&P 500 returns do not include consideration for fees or taxes.
Past performance is no guarantee of future results.
The MCM Difference
For more, please read the MCM Difference page. |