Making Investments the Old-Fashioned Way

The old world of investing has lately been crumbling. Passive investment management has captured the bulk of equity inflows, which has fueled remarkable growth in index mutual funds and exchange-traded funds (ETFs). Out of the total USD 533 billion that flowed into all funds and ETFs tracked by Morningstar globally last year, investors plowed a net USD 289 billion into Vanguard funds [Source: WSJ, 2/9/17]. BlackRock, which has grown into the world’s largest asset manager, in large part due to its low-cost ETFs, recently overhauled its actively managed equity mutual funds to emphasize more quantitative strategies. [Source: WSJ, 3/29/17, “BlackRock Shake-Up Favors Computers Over Humans”] Meanwhile, some hedge funds have turned their attention to more algorithmic-driven strategies, building complex computer models to trade nearly instantaneously upon learning market news. Other funds sift through enormous datasets and employ machine-learning algorithms to uncover subtle patterns in market data.

But there’s an alternative. For the discerning investor who values traditional craftsmanship, we offer Artisanal Capital Partners LLC. Inspired by the rigorous standards of Savile Row tailors, our investment portfolios are handcrafted at our plushly carpeted atelier in Greenwich, Connecticut. While other asset managers have become more mechanical and algorithmic, we proudly hark back to an era when securities were selected using old-fashioned fundamentals, and portfolios were constructed directly by managers, not machines.

What We Do Differently

We read the proxies, the Ks, and the Qs. We read body language. We know the CEO’s strengths, her strategies, and her golf handicap. We track the flights of the corporate jet. We ferret out the insider who’s selling shares to pay for a contentious divorce settlement. Not only have we reviewed the auditor’s report, but we’re friends with the principal auditor (well, maybe just Facebook friends). We even got invited to the IR manager’s son’s bar mitzvah.

We’ve examined the cash flow statement and thoughtfully considered the quality of earnings. We’re often still working on a DCF model at the office when a stealthy press release slips over the transom at 5:30 p.m. on a Friday before a holiday weekend.

Like Tibetan monks who painstakingly create a delicate mandala with grains of brightly colored sand, we construct a one-of-a-kind mosaic to inform our investment process. We’ve counted cars in factory parking lots and observed foot traffic through the stores. We’ve interviewed customers and vendors, both the disgruntled and the gruntled. Our desks are piled high with annual assessments and research reports. We keep Excel models running in the background like a fire engine ready to go.

At Artisanal Capital, we regularly meet with the CFOs of our holdings and our prospects. We shake their hands firmly while looking them squarely in the eyes. During IPO roadshow lunches, we’ve been served chicken that tasted like hockey pucks while we’ve been shown revenue charts that looked like hockey sticks. We trust our gut instincts—and we have very well-tuned guts from years of investing experience.

Our Approach

Why settle for a fund consisting of arbitrarily selected stocks that are destined to perform as a commonplace index? If you’re the sort of person who likes to know how much horsepower your vintage Porsche convertible produces, or the specs of your hand-built gaming rig’s solid-state drive, we’re the fund manager for you. We want to be persuaded by the bullish investment case for a stock, not simply push a button to quantitatively rebalance a portfolio. You need a fund tailored with bespoke holdings, stitched together to reflect our finest thinking on the fundamental forces affecting the markets today. We have found that this is a process that should never be rushed, and one that has served generations of wealth advisory firms (and their clients, too, of course).

Our investing process isn’t about ensuring cookie-cutter replicability. Every investment idea is lovingly vetted over discussions in our dining room and investment committee meetings in our board room. We handpick heirloom securities at the peak of freshness. We harvest the ideas regularly in an environmentally sustainable manner (that is, we print out sell-side analyst reports on both sides of a page). Our long ideas have a kernel of value, burnished with a patina of good capital allocation. Our short ideas are the product of old-fashioned scuttlebutt research and diligent shoe-leather digging.

Who We Are

We’ve designed our hiring process to attract the best fundamental equity analysts on Wall Street. We always ask our interviewees whether they really have a passion for the markets, not merely data analysis. Once, a candidate said, “Well, I opened a brokerage account when I was eight and have been trading my parents’ portfolio since I was twelve years old.” Skeptical, we dug deeper: “Was that just a ploy to polish your college application for Wharton?” He didn’t get hired.

Who Our Investors Are

For our investors, we offer a curated collection of select securities to suit your risk tolerance and your return objectives.

Each quarter, we’ll send you a portfolio manager’s letter suitable for framing. We fill it with a delicious combination of homespun wisdom and plausible explanations for our recent results. Peter Lynch invested for thirteen years at Fidelity Magellan using less powerful computers than your teenage daughter’s Android phone. We can surely strive to meet our investment objective of absolute return without blind dependence on the hidden layers of a neural network algorithm trained on years of Burmese crop yield data by astrophysics PhDs. Our firsthand experience and our spreadsheet-driven analysis have given us a measure of investing wisdom when it comes to making critical buy and sell decisions. For us, it’s roughly the difference between recalling the plot of a classic black-and-white Fellini film and just looking up the stars of The Fast and the Furious in the IMDB database.

Investing the Artisanal way is, by design, not a mass-market product. You could buy an off-the-rack index fund for eight basis points per annum, but for the discriminating investor, you deserve the meticulous craftsmanship of hand-wrought security selection. There’s no substitute for actually performing the hard work of price discovery. The art of investing is diminished, and the price signals weakened, when passive index funds strive to deploy billions of dollars of inflows without disrupting the market status quo or the relative valuations of index components. The value of the fundamental investing framework at Artisanal Capital lies in its unique CFA®-based and (we daresay) human-driven elements. Isn’t your investment portfolio worth it?

Past performance is no guarantee of future results.

About the Author

Mark J. Badros, CFA, strives to be a humorous writer and a serious investor. He has worked as an equity analyst for mutual funds, hedge funds, and alternative investment firms in New York City, Dallas, and Princeton. He is a graduate of Princeton University and Harvard Law School.