What would you say ya do here?

I was recently asked to write a summary of Parsec’s investment process, in a relatively jargon-free, easy-to-understand manner. As it happens, it is also my turn to post the blog, so surprise! I’ll be killing two birds with one stone. In much the same manner Andie Walsh created her prom dress in Pretty in Pink, I have fashioned this summary from bits and pieces of preexisting brochures and other client materials, so it may look a little familiar:

We follow a long-term investment strategy based on diversification and reduced risk. Although we create a customized portfolio for every client, our overall investment approach includes:

  • Balanced investment between growth and value, including small-, mid- and large-cap companies, with some weight in international markets;
  • Individual stocks for the large-cap portion of a portfolio (when appropriate to account size), carefully researched and chosen by our Investment Policy Committee;
  • Equity mutual funds for the mid-cap, small-cap, and international portions of a portfolio;
  • High-quality short- and intermediate-term bond funds or individual bonds for clients who require a fixed-income allocation.

We follow a bottom-up stock selection process focusing on several fundamentals including:

  • Current valuation relative to projected earnings growth;
  • Price/earnings ratio relative to the overall market and to the company’s own historical range;
  • Degree of financial leverage, avoiding heavily indebted companies;
  • Level and consistency of profit margins.

Based on our research and analysis, we have compiled a recommended list of securities. We continually monitor the prices of the securities on this list, as well as any news regarding these holdings. In addition, every security in our coverage universe is formally reviewed at least 3 to 4 times a year, and more often if circumstances dictate.

Our Investment Policy Committee meets weekly to discuss each company and vote on a recommendation. If the committee votes to sell a holding, a block trade is initiated across all discretionary client accounts so that the committee’s convictions are effected on a firm-wide basis in an orderly and timely fashion. When the trade is executed, all accounts participating in the trade receive the same price.

Investing in securities involves risk of loss that clients should be prepared to bear.  Investment risk consists of both systematic risk and unsystematic risk.  Unsystematic risk is not related to the market as a whole, but rather is associated with a specific firm or investment.  Systematic risk is the risk associated with the overall market that is not unique to any one investment vehicle. It is possible to reduce unsystematic risk by creating a portfolio diversified across many different companies and sectors.

It is not possible to eliminate systematic risk.  Macroeconomic factors such as inflation, unemployment, corporate earnings, commodity prices, and interest rates all contribute to systematic risk since they influence the prices of all risky assets. However, it is possible to lower systematic risk somewhat by diversifying internationally, since economic variables in the U.S. are not necessarily correlated with those in other countries. Of course, investing internationally exposes investors to risks related to social, political, and economic factors, as well as fluctuating exchange rates.

Sarah DerGarabedian, Research and Trading Associate

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