Earlier this month, we explored what it means to maximize value. Equally if not more important, is minimizing risk. Value is in the eye of the beholder, but risk is more quantifiable so may be more easily mitigated.
Believing in a Creator, we believe that God controls the future, not us. At Covenant Capital Management, we come before Him with humility and accept that the only thing we know for certain is that we do not know anything for certain! This doesn’t mean we are powerless, but it does shape the way in which we manage investments on behalf of our clients. We understand the consequences of hasty decisions. After all “The thoughts of the diligent tend only to plenty; but the thoughts of everyone who is hasty only to poverty” Proverbs 21:5. This is why our approach has always been one of exercising discipline and patience, with a focus on capital preservation.
Our investment philosophy seeks to buy companies with strong fundamentals. As a firm that believes in value investing, we stick to our investment strategy “In every action and every decision” Proverbs 10:9. There is a danger in chasing hot stocks/ markets and although we may sometimes under perform as a result, we believe we actively address risk by controlling the volatility in clients’ portfolios.
Another way that we minimize risk is through the process of diversification. You’ve perhaps heard this word many a time but in this instance we’re not simply referring to holding a variety of asset classes so as not to put all our eggs in one basket. Covenant Capital Management also diversifies at the fund level, so every egg is evaluated. Each opportunity within asset classes is seen as unique and rigorously examined. It is not about the sheer number of holdings but the quality of them. This is our endeavour: “Know well the face of your flocks’; and pay attention to your herds” Proverbs 27:23.
When searching for an advisor, one is tempted to emphasize performance numbers and returns. Over and above that, be sure that your advisor knows how to effectively manage the risk in your portfolio.