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Bush O'Donnell uses a disciplined, long-term investment approach. We believe that buying and holding a concentrated portfolio of very high quality growth stocks is the most rational and least speculative method to grow assets.
We believe that stock prices will follow earnings over time. We have built a portfolio of companies that consistently and reliably grow earnings faster than the S&P 500 index. If we can buy shares of these companies at a reasonable price, we should outperform the index.
We never attempt to time the market; our clients remain fully invested at all times. While we disregard price momentum, we will take advantage of the occasional short-term market turmoil to add to existing positions.
Bush O'Donnell doesn't trade stocks - we make long-term investments in great businesses. We view our investments as claims on each company's cash flows. To better understand the cash flows, we analyze the underlying fundamentals of the business. We examine the quality and consistency of earnings, top-line growth, strength and depth of management, barriers to competition, use of financial leverage, global marketing efforts, product life cycles, and other factors. Very few businesses that we review qualify as worthy investments.
We tend to be loyal to those few that qualify. We are willing to ride out periods of sub-par performance if we are convinced that the company's future prospects are brighter. Our perseverance usually pays off. We will sell our position if the company shows no signs of returning to target earnings levels within a reasonable time.
We only invest in U.S. companies. This minimizes foreign currency exchange risk and gives us access to more complete information about our investments. However, over 50% of the revenues in our portfolio come from outside the U.S., as most of our companies have significant international exposure.
This rational approach to investing is the complete opposite of speculative daily trading and hyper-diversification. Our concentrated portfolios of solid businesses should continue to provide superior steady growth over the long term with no more risk than a more diversified portfolio.
Bush O'Donnell began managing in this style in June 1987. Mark Reed and Jim O'Donnell have been the primary portfolio managers since inception. This consistency of management has ensured an equally consistent style.
We seek companies that consistently grow earnings between 12% and 15% each year. Above 15%, earnings growth is difficult to sustain. Below 12%, it is simply not as interesting an investment.
We invest in very large companies, averaging over $82 billion market capitalization. By the time a company has grown at our target rate for a number of years, it will be a big company. Companies of this size tend to be more predictable and better analyzed than small or mid-cap companies.
We only invest in businesses that we can readily understand. Consistently high earnings growth has no need to hide.
As long-term investors we have very low turnover in our portfolio, less than 20% per year. This makes realized capital gains a fairly rare event and renders the strategy very tax-efficient.
Finally, we concentrate our investments in the 15 to 20 best opportunities we can find. This diversifies our investments enough to reduce single company risk while still providing the opportunity for superior returns.
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