Earnings performance drives stock prices
Investors enjoy countless options in terms of choosing the best path to reach their financial goals. We consider growth to be the key ingredient to any successful long-term investment plan. Growth equity investing based on individual-company earnings trends has been our hallmark since our founding.
Growth Strategy At A Glance
Individual-company fundamentals determine stock prices
While interest rates, geopolitical events and other macro forces can move “the market” for fleeting periods, each company influences the long-term direction of its share price through operational execution.
Companies that top expectations attract positive attention
As growth investors, we view earnings growth as the ultimate sign of a company’s success. We believe companies with earnings power that the broader investment community underestimates offer the best potential for share price appreciation.
Exhaustive research legwork isolates companies with the most potential to positively surprise
We believe the best way to gain insight into individual-company earnings trends is to stay connected to the front lines of the economy through ongoing interviews with management teams, customers, competitors and suppliers. Exhaustive research is our firm’s central focus.
Each company earns its space in the portfolio by showing greater promise than an existing holding
Consistent with our individual-company focus, a portfolio position is prime space only available to a company with a better fundamental profile than an existing holding. Portfolio construction is a function of our continuous search for individual-company earnings strength.
Valuation sensitivity is critical to investment success
High valuations invite risk. To maximize upside potential and mitigate downside risk, we focus on rapidly growing companies that also sell at reasonable share prices relative to earnings.
Exhaustive, company-by-company research is the Friess advantage
We dedicate our resources to conducting research legwork, which entails regular interaction with people on the front lines of the economy. Friess Associates coined the term “trade check” to describe the interviews we conduct with company executives, managers, customers, competitors and suppliers. Trade checks include in-person company visits, trade shows, user conferences and discussions via phone.
The Friess research team conducts hundreds of trade checks each month in its ongoing effort to glean insights on existing and potential holdings. Trade checks represent one of our most fruitful methods of idea generation, with research legwork often uncovering promising opportunities outside of the initial direction of our investigation.
All Cap Approach
All Cap research filtered by fundamentals
Our research process starts by casting a Research Funnelwide net. Our goal is to isolate a relatively small group of high quality companies. The minimum earnings growth requirement – typically 20% year over year – creates a universe of potential investments. We cull that group further through disciplines regarding valuation, balance sheet strength and upcoming earnings catalysts, among other considerations. Friess researchers ultimately target a select group, but they operate freely within that pool of potential investments.
Friess researchers are generalists, giving them the freedom to suggest the best ideas they uncover regardless of industry. We don’t run the risk of having a semiconductor analyst who might push for a chipmaker to be in the portfolio to justify his or her existence at a time when the chipmaker doesn’t represent a good investment. Our generalist approach gives us the flexibility to nimbly move to the next pockets of earnings strength as the environment evolves.
Friess researchers pursue companies free from market-cap constraints. Our focus encompasses the entire market-cap spectrum. For example, our research might cover a large cap company’s mid cap supplier and its small cap vendor. Taking a broader, all cap view that spans a company’s complete “food chain” positions us to uncover trends that foreshadow trouble or point to opportunity before they become obvious to portfolio managers whose focus is more narrow.
Portfolios positioned to beat the benchmarks, not mimic them
Friess Associates is an active, bottom-up manager. We build portfolios one company at a time without regard to the composition of any particular index. Our individual-company focus results in portfolios that typically offer lower correlations to passive benchmarks.
The Friess Associates investment strategy is based on each company’s ability to influence its share price through operational performance. Our portfolio management style is consistent with that individual-company focus. The goal is to outperform the indexes, not mimic them.
Collections of our best ideas
Existing holdings must continuously earn their keep by showing more upside potential than new candidates for purchase based on their respective fundamental outlooks. We follow a forced displacement discipline that leads us to continue to upgrade the portfolio with new opportunities that investors have yet to fully reward. The goal is to replace good investments with great ones, resulting in a portfolio that represents a collection of our best ideas.
Maintaining best-idea portfolios
Forced displacement triggers a sale when assets from an existing holding are needed to fund the purchase of a new, more promising investment opportunity. This policy reflects our appreciation for the time value of the assets entrusted to us. We also sell an existing holding when it reaches our price target, its fundamentals deteriorate or Wall Street becomes overly optimistic about its prospects.
Since we are valuation sensitive, our price targets can be more conservative when compared with aggressive growth investors who are willing to shoulder higher valuation risk. We seek companies with improving fundamentals, so we don’t hesitate to sell a company when it proves us wrong. Also, given that we want companies that top expectations, we move on when we believe consensus estimates overstate a holding’s potential.