We like investments in oligopolistic industries, where the concentration that almost always occurs has run its course and are beneficiaries of product pricing freedom. The leading companies in these industries often produce reliable income for years. High market share holders typically capture disproportional shares of earnings and cash flow. In a sense, it is about the reliability of growth in free cash flow.
Hortz: What are your views on portfolio construction and risk management?
Berkeley: We think a lot about portfolio construction. We have clients that come to us for wealth preservation; others have come for growth, and some want a very aggressive, very focused innovation portfolio. We try hard to understand the client’s risk tolerance. We tend to be long term investors, and we add to existing holdings when we believe fundamentals are intact and the general market is speculating on bearish sentiment. We tend to trim existing holdings when we believe fundamentals have changed and the general market is speculating unreasonably.
What we do not do is to time the market by moving in and out of cash wholesale. As I like to say, I was a lot smarter when I was a lot younger. I am too stupid to time the market speculatively. We are fundamentalists: We look to the management teams in which we invest to create demand and fill it profitably. We are investors looking at the supply of goods and services in the markets for goods and services. We are not speculators looking at the supply of bids and asks in the financial markets.
Hortz: Can you offer any recommendations to advisors on how to communicate innovation investing and integrate this approach and mindset into clients’ portfolios?
Berkeley: Innovation-based investing requires an active investment approach driven by specialized innovation knowledge. It also requires persistent attention to company managements that are anticipating the future and can create and deliver new solutions and revenue streams into their marketplace. As we discussed before, it is an investment approach with a practical focus on probabilities (investing) versus possibilities (speculation) through a singular mindset trained on the nature and mechanics of business innovation.
We offer advisors and their client the benefits of investing strategically utilizing in-depth innovation research and well thought out portfolios geared towards important innovations and the management teams that can seize investment value from innovation creation and delivery. These innovations can be seen as major drivers towards long-term growth trends for the U.S. and world economy and can position investors to capture some of that growth for their investment portfolios.
The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors — Ultimus Fund Solutions, NASDAQ, FLX Networks, Pershing, Fidelity, Voya Financial, Advisorpedia and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines).