Service Professionals Information
Journeyman collaborates fully with a client’s attorney, accountant and tax advisor, insurance broker, estate administrator and other service professionals. Journeyman also cooperates closely with investment consultants, union fund business managers and similar professionals.
Journeyman engages in Comprehensive Research of Both Macro-Economic and Micro-Economic Risks and Opportunities as part of its investment process. We engage in, and draw on:
- Macro analysis from leading economists and strategists
- Management interviews (generally IR and finance departments of larger companies, C-level executives of smaller companies)
- Customer/supplier/competitor interviews independently sourced through business network and any other means
- Primary research on individual companies, including:
- Fundamental company and industry analysis
- Industry trends and competitive positioning
- Identifying secular tailwinds
- Influence of technology
- Rigorous financial analysis
- Revenue and margin trends and ratio analysis versus competitors.
We do this to find suitable investments for our clients in solid businesses and other forms of security investments.
The following information provides greater insight into the Journeyman investment process:
1. Journeyman Resources
Journeyman accesses macro-economic, secular trend and individual company research, directly and indirectly, from numerous sources, including:
2. Custodial Relationships
Journeyman maintains custodial relationships with the following custodians:
- Charles Schwab & Co. Inc.
- Interactive Brokers
- TD Ameritrade
- Fidelity Investments
3. Investment Screening Metrics
- Journeyman deploys a combination of fundamental, quantitative and technical analysis.
- Initial Equity Investment screening criteria generally include a three-year operating history, a market capitalization in excess of $50 million, and financial quality measures, including a three-year average EBITDA/debt service ratio in excess of 1.0.
- Fundamental Factors Journeyman may consider in evaluating an investment include:
- Attractiveness of Industry – Secular « Tailwinds », Maturity Stage of Industry and particular Company within the industry
- Company Product/Service Quality, Customer Acceptance, Uniqueness, Competitive Advantages
- Management Quality
- Customer Retention and Growth
- Company History
- Cost Structure
- Capital Allocation, e.g., attractiveness of prior acquisitions, use of leverage
- Company/ Industry Opportunities and Threats (risks, concerns)
- Financial Metrics Journeyman May Consider Include:
- Revenue Growth
- Margin Trends
- Earnings Momentum
- Earnings Revisions (if any)
- Price to Earnings to Growth
- Price to Free Cash Flow
- Earnings and Share Price Volatility
- Relative Price to Earnings for Peer Group
- Debt Service Capacity
- Financial Leverage and Trends
- Normalized Returns on Equity
4. Portfolio Construction
- Journeyman constructs portfolios from the bottom-up, using the research process described here and under The Journeyman Edge. (Please see the website heading “Investments.”) Client portfolios will have the following broad characteristics and will be diversified by industry, geography and size with the following parameters:
- Long portfolios will typically feature 12-20 positions: 8-12 core positions ranging from 5-12%, and 4-8 limited investment positions ranging from 1-3%.
- Short investments will generally be characterized by the use of ETFs but may include company positions, typically ranging from 1-3% of the portfolio value depending on the opportunity.
- Exposure to emerging markets is limited, generally to less than 20%.
- Exposure to micro-caps (sub $200M market cap) is also limited.
- Rarely will there be more than 30% exposure to a certain industry.
- Individual long positions will generally not exceed 15% of capital at cost.
- As deemed suitable, Journeyman will deploy ETFs, low cost mutual funds or other strategies involving a low-cost third party manager (e.g., the Vanguard Total Return Bond Fund for a client seeking income.)
- Journeyman uses an IRR approach to determine position sizes for both core positions and limited investment positions. More capital is generally allocated to higher IRRs, on a risk-adjusted basis, with potential for permanent capital impairment as the primary risk factor.
- IRRs are generally driven by the difference between current market value and estimated market value 1-3 years out assuming a reasonable exit multiple.
5. Risk Management: Sale Discipline/ Particular Spheres of Competence
- Sale Discipline.
- Journeyman sells for one of the following three reasons:
- An investment appreciates and the investment’s intrinsic value and market value converge, leaving an unattractive IRR;
- A better investment idea presents itself; or
- A mistake is made regarding the fundamentals of a business. Journeyman’s discipline requires an exit if an analytical error is made, regardless of how attractive valuation might be. Journeyman realizes losses (or under-performance) quickly in an effort to redeploy capital to superior investment opportunities.
- Journeyman invests in companies with understandable business models and transparent financials, in order to limit risk-taking to management execution, market growth and valuation.
- Example: Journeyman avoids companies with opaque balance sheets and excessive financial leverage (e.g., at present, many financial institutions).
- Journeyman searches for high volume growth opportunities with proven business models in multiple industry sectors, including technology and biotechnology.
- Particular spheres of competence at Journeyman include investments in the following industries:
- Technology, including security monitoring
- Waste management
- Emerging market consumer growth industries, e.g., cellular technology, beer, packaged products.
Please ask your investment consultant to discuss these aspects of our investment process and strategy with you.