The four corners of our investment philosophy are quality, growth, fundamental analysis, and long-term focus.
Quality. "Blue Chip" and "Conservative" are two terms used frequently in the investment business to connote quality. At Farr Miller & Washington, "quality" is defined by solid returns and consistency over time — not by a company’s appearance on a select list or inclusion in a Best Picks List. We look for great businesses with leading market share, franchise value, strong niche markets, pricing power and high barriers to entry. Healthy balance sheets, stable and improving margins, and high levels of cash flow are also priorities. Strong management is always a priority.
Growth. The market rewards growth with higher stock prices, but not all growth is created equal. Farr, Miller & Washington focuses on consistent, internal growth rates. If the majority of growth comes through acquisition, it may ultimately be at the expense of the shareholder. We typically look for internal growth rates that will exceed those of the market for a meaningful period of time.
Fundamental Analysis. Our analysis is extensive in scope and rigorous in its discipline. The goal is to build a diversified portfolio of high quality growth companies that trade at reasonable valuations. Paying a reasonable price for an investment is an absolute "must" if one hopes to generate superior returns over time. Identifying companies that fit our strict discipline and then figuring out an appropriate price for these companies requires significant due diligence on the part of the firm’s investment committee. This due diligence may include, but is not limited to, a thorough review of financial statements and SEC filings, discussions with corporate management, interviews with Wall Street analysts and reviews of plants and operations, suppliers and competitors. In conjunction with fundamental analysis, interest rate sensitivity, currency and business cycle issues are considered. Farr, Miller & Washington has regular contact with and receives research from major Wall Street investment firms, but ultimately depends on its own analytical work for its final decisions.
Long Term Focus. Fundamentals have a way of reasserting themselves. To this end, our view is toward the long term. It is no mistake that the greatest returns have been achieved by the classic "buy and hold" investors. We avoid trends and market timing tactics. When transaction costs and tax consequences are factored into the equation, we generally believe a "buy and hold" strategy yields the greatest total return over time.