Investment Philosophy Statement

Our goal is long-term growth, with a risk-averse attitude. We believe in buying common stock in companies of the highest quality at prices that are anywhere from reasonable down to cheap.

Companies of the highest quality are usually demonstrably more profitable at the corporate level than average. They generally have a history of earning attractive returns on their capital, with prospects of reinvesting profits internally at an attractive rate. In the best case there is little or no debt, and management owns a significant stake. Management needs to be serious about serving the financial interests of the outside shareholders rather than looking to build an empire.

Having found a good company, we want a stock price that provides what is likely to prove a healthy margin of safety relative to the fixed income instruments that we would use as a parking place for otherwise unused funds. The margin relative to cash or bonds has to be worthwhile partly to help buffer against risk, but also to help focus effort and capital on the best ideas. The ideal is to buy dollar bills for 50 cents.

We usually invest in U.S.-based companies because we understand them best. We typically prefer a higher concentration in fully-invested portfolios than most advisers. Concentration flows from thinking of stocks as fractional ownership in real companies, rather than as pieces of paper. Viewing securities this way is the key to the firm’s approach to investing.

Market conditions occasionally present bargains in less sterling securities, such as those issued by companies with less attractive businesses or less talented management. That is not our favorite kind of purchase, but at a low enough price, such investments can work out well, as can investments in broad indices. We reserve the right to invest opportunistically in such securities (which may include not only common stock, but convertible bonds, preferred stock, warrants, zero coupon bonds, exchange-traded funds, etc.) if the price seems compelling. This is not a focus, however, and clients may impose guidelines unique to their own account.

Investing for the long term helps hold down frictional costs such as taxes. Keeping things simple helps reduce the risk of error.

Our firm provides portfolio management and investment advice, not stock brokering. We can coordinate our efforts with any other adviser you may use, such as an accountant or tax lawyer, and will be happy to select and handle the contact with an independent discount brokerage firm on your behalf.

Shayne & Jacobs, LLC, is registered as an investment adviser with the U.S. Securities and Exchange Commission.

Clients hold their assets at an independent financial institution, most commonly Schwab, with the account in the client’s own name.

Please keep in mind that, particularly in the short run, stock prices can be very volatile. Historically stocks have provided good long-term returns, but the future may be different. Losses as well as gains are possible. Investment decisions always involve uncertainty and risk, and no method or style of investing can assure desired results. It is important for investors in common stocks and most other securities to have the ability, even if they do not use it, to leave their investments untouched for a number of years. This helps avoid the need to sell if the market becomes depressed for a long time.