INVESTMENT STRATEGY

  • Deliberate buying of stocks (one at a time, choosing each one individually)
  • Look for mistakes by Wall Street
  • Buy below intrinsic value
  • Flexible approach - growth stocks, value stocks, and small, mid, or large-sized companies, except for the High Dividend Portfolio which invests only in large caps


ADVANTAGES OVER MUTUAL FUNDS

  • No hidden costs (like 12(b)(1) fees in mutual funds)
  • See what you own
  • Detailed reporting and direct access to me


INDEPENDENT ANALYSIS

What you can expect from Naworski Investments:

  • Independent analysis of stocks
  • No ties to investment bankers
  • No ties to the major Wall street brokerages
  • Stock analysis is done from scratch
  • Your interests come first


The same isn't always true for many professional money managers, who sometimes can't be honest to you without risking their own livelihoods. Their firms have a financial interest in promoting certain stocks, annuities and mutual funds, regardless of whether they are a good investment for you. At Naworski Investments we do not sell financial products and there is never a surrender charge or exit fee.

INVESTMENT PHILOSOPHY

I use a rigorous, analytical approach to determine the values a businessman would place on the businesses that I buy for my clients. In my view, the most important factor in purchasing a stock is the price paid in relation to the intrinsic value of the stock. My approach is to attempt to buy each stock well below its intrinsic value. By doing this with twenty-five to thirty-five well-diversified stocks, I hope to put the odds of success in my client's favor.

Diversification

All of my clients' stock portfolios consist of between 25-35 stocks. Academic studies have determined that holding 18-20 stocks will supply 95% of the diversification as a portfolio with 100 stocks. In my view, mutual funds that hold 100 or more stocks have very little chance of outperforming the indexes over the long run. With twenty-five stocks, if I make a good selection then the portfolio will benefit significantly from it. When a stock is only 1% of the entire portfolio, even if it doubles, it will add only a 1% gain to the portfolio's overall return.

A portfolio manager that buys one hundred stocks is admitting that he cannot distinguish which of the 100 stocks is more desirable than the other 99. Of course, to take this argument to its logical extreme would require that the entire portfolio be invested in one stock. If one was certain that one stock would outperform the others it would be foolish to buy the other stocks and dilute the overall return. Since one can never be that certain about the prospects of one stock, I have found that a portfolio of twenty-five to thirty-five stocks provides the best balance between these two contradictory concepts. I do attempt to diversify among different sectors where the business risks are opposed to each other. In other words, I would not buy ten housing stocks or ten drug stocks even if they represented the best sectors to buy.

Risk Management

Unlike some mutual funds and investment advisors, I use no options or other derivatives to hedge my client's portfolios. This is not a hedge fund and no shorting of stocks is allowed. My only risk management tools are being sure that I do not overpay for stocks and going to a maximum cash position of 50% if I am unable to find good values in the stock market.

I tend to buy stocks in sectors that are temporarily depressed. Later, when other sectors fall I will add to those sectors. Wall Street tends to be single-minded at times favoring one group over another. If I have bought certain stocks while their respective sector was down, when they rise other stocks that act in an opposite manner will fall and vice versa. This has tended to smooth out variance in return of my client's portfolios even though they hold less stocks than most mutual funds. But you should note that the overriding concern for me is to buy good businesses below their fair market value. I do not intentionally look for stocks in a certain sector solely because they are less correlated with the other stocks in the portfolio. In that sense I am a bottoms up stock picker. I am also not wedded to labels such as growth or value. If a so-called growth stock is selling below its intrinsic value, then I will purchase it just as I will buy an undervalued value stock.

Another key part of my risk management strategy is active portfolio management. In volatile markets if one fails to lock in significant gains it will be difficult to outperform the benchmark over time. While the turnover rate will vary depending on market conditions, one can expect a 100-150% turnover rate. My nontaxable accounts will be a little more actively managed since no taxes are imposed on the gains.