Investment Management
Active Management Strategy
Under our active management strategy, our primary goal is to pursue equity-like returns while minimizing risk of permanent loss of capital. We believe we have a reasonable chance of achieving superior returns due to our disciplined investment philosophy and in-depth research process along with our flexibility and ability to invest in companies of all sizes, including smaller companies which may be overlooked by large institutional investors. Our conservative approach means we will likely outperform in bear markets and may underperform in strong bull markets. We believe we can generate strong risk-adjusted returns across the full market cycle.
Please note that investing always carries some degree of risk and we cannot guarantee specific results. In fact, we would advise you to run away from any advisor who does. However, it is worth noting that Chao has substantially all of his and his family’s net worth invested in the same stocks as the clients of Think Different Wealth Advisors. We find the incentives are best aligned when the cook is willing to eat his own cooking. While all clients will own the same stocks, your individual portfolio mix of stocks, bonds, and cash will be customized based on your risk tolerance and unique life-stage needs.
We invite you to schedule an investment meeting to learn about our historical track record, current market outlook, and walk through a sample investment thesis.
Our Investment Philosophy
At the core of our investment philosophy is the clear understanding that price is what you pay, and value is what you get. Through our research process, we arrive at an estimated intrinsic value for each security. We only invest in a security if it is trading at significant discount to our estimate of intrinsic value, giving us a margin of safety.
Our investment style can best be described as “value” and “growth at a reasonable price.” Under our value strategy, we look to purchase stocks in out-of-favor companies at cheap prices with high earnings, good asset protection, and strong cash flow generation.
Under our growth-at-a-reasonable-price strategy, we look to purchase equities in great companies at fair prices with solid long-term growth prospects and defensible, strong barriers to entry that make it difficult for new competitors to enter.
We believe success comes from knowing your circle of competence and we only invest in companies we fully understand. We are long-term investors and have the patience and ability to hold our investments for multi-year investment horizons. Rather than diversifying (or perhaps di-worsifying?) into hundreds of mediocre ideas, we believe in concentrating in our very best ideas while maintaining adequate diversification.
The stock market is filled with individuals who know the price of everything, but the value of nothing.
Our Research Process
Our research process can be best described as intense company-specific and industry research, combining both the quantitative and the qualitative.
Quantitative
- Intensive financial modeling in Excel, including historical and projected financials
- Analysis and forecasting of a company’s operating segments
- Detailed reading and understanding of the disclosures in SEC filings
- Comparing financial ratios against that of competitors and industry norms
- Credit risk analysis by looking at loan documents, interest coverage, and ability to meet covenants
- Using alternative data to track performance in real time, including search trends, app download and grossing trends, web traffic, raw material costs, and other macro and industry specific data
Qualitative
- Understanding the company’s value proposition from the perspective of its customer, including evaluating the company’s services or products and comparing it against competitors
- Interviews with a company’s competitors, suppliers, customers, and former employees, as well as industry consultants and trade associations
- Evaluation of management’s capabilities, honesty, experience, and shareholder-friendliness
- Depending on the type of company, attending trade shows for gathering information, viewing new products or technologies, and networking
- Finally, visits to a company’s facilities or stores
I will tell you the secret to getting rich on Wall Street. You try to be greedy when others are fearful. And you try to be fearful when others are greedy.
Passive Management Strategy
Passive investing involves building portfolios that are composed of various distinct asset classes. The asset classes are weighted in a manner to achieve the desired relationship between correlation, risk, and return. Funds that passively capture the returns of the desired asset classes are placed in the portfolio. The funds that are used to build passive portfolios are typically index mutual funds or exchange-traded funds (ETFs).
Passive investment management is characterized by low portfolio expenses (i.e. the funds inside the portfolio have low internal costs), minimal trading costs (due to infrequent trading activity), and relative tax efficiency (because the funds inside the portfolio are tax efficient and turnover inside the portfolio is minimal).
In constructing your passive portfolio, we will take into account the risk tolerance and risk capacity of each client as well as the expected returns, risk, and correlation between asset classes.
Our Ideal Client
Just as you are looking for a financial advisor who fits your needs, we are also looking for our ideal clients. We view our clients as our partners in our investment enterprise and want to associate with individuals who share our values.
Our Ideal Client
- Decent, honest people who treat others with respect (life is too short to be wasted dealing with the other kind)
- Share our approach to investing: preserve capital, minimize losses, compound wealth over the long term, avoid Hail Mary attempts, never bet the farm
- Appreciate that investment manager performance must be evaluated over a full cycle. Any manager can take large risks and show good results in a bull market. The risks only become apparent in a bear market. As Buffett likes to say, “It’s only when the tide goes out that you learn who has been swimming naked.”
- Do not want to deal with investing themselves and trust us to manage their investments prudently. It is better for most people not to watch the daily stock ticker.
- Respect our time. We are happy to answer questions, but don’t abuse our relationship.
- For financial planning clients, the willingness to participate and engage in the financing planning process, including being responsive to requests and committing to meet as needed
Not Our Ideal Client
- Looking to get rich quick or view the stock market as gambling or a casino
- Want to own the hottest stocks / crypto of the day
- Look at stock prices by the minute and prefer short-term trading rather than treating stocks as long-term interests in businesses
- Want to pursue aggressive schemes or tax tactics that may be borderline unethical / unlawful. We believe there is more than enough money to be made lawfully and ethically and have no interest in pursuing things in the gray zone.
- Those who ignore our advice repeatedly. You do not have to do everything we say, but what’s the point if you never take our advice.
Like our Investing Process?
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