| Our Philosophy |
| Aletheia Research and Management is a corporation seeking success through truth. Aletheia believes that investment truth exists. Aletheia further believes that correct investing and ultimate investment success depends upon discovering what is knowable about corporations and their secular earnings prospects and applying this knowledge astutely. |
| While a belief in investment truth may seem obvious, it is not. Without realizing it, most individuals and most investment professionals believe investing to be a matter of preferences and prejudices, where no absolutes exist. What is right for one person is not right for another, and a given investment style is judged by fashion rather than fact. But truth is not relative. Coca-Cola at $2.00 and 16% non-callable U.S. Government Bonds were good for everyone |
| A key part of Aletheia's philosophy concerns Wall Street and its research. Rather than a path to truth, we consider it to be an impediment, and we do not use it. Such information comes primarily from securities analysts who generally speak to the same corporate investor relations personnel. Thus, many people charged with tracking companies and their prospects have abdicated their responsibility to individuals dispensing corporate spin. On top of this, many of these same securities analysts have enormous corporate finance conflicts of interest and rarely own stocks they are recommending. Finally, it is worth noting, Wall Street must identify things that are saleable. This usually limits their recommendations to issues that are in vogue or have done well recently. Securities that are very popular with many people on Wall Street usually sell at premium prices and rarely represent good value. |
| We at Aletheia also disagree with the current obsession with the S&P 500, and short-term performance relative to this or any other index. Ironically, by making the index one's focus, one can easily make bad choices, which lead to underperformance. As an example, take a look at the 1992-93 performance of the stocks below. Notice that these great companies collectively had negative returns for both years. Their failure to beat the S&P caused many to sell them. This was the wrong thing to do. |
| Company |
1992 Performance |
1993 Performance |
1994-1997 Performance |
| Coca-Cola |
+4.4% |
+6.6% |
+198% |
| Gillette |
+1.3% |
+4.8% |
+237% |
| IBM |
-43.4% |
+12.2% |
+270% |
| Johnson & Johnson |
-12.2% |
-10.7% |
+194% |
| Microsoft |
+15.0% |
-5.7% |
+541% |
| Merck |
-21.8% |
-20.7% |
+208% |
| Average |
-9.5% |
-2.3% |
+274% |
| S&P 500 |
+4.5% |
+7.0% |
+108% |
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| As you can see, if one judged the rightness of the investments above by where they stood in relation to the S&P 500 in either 1992 or 1993, he would have incorrectly concluded that there was something inherently wrong with some of the strongest businesses in the world. And in fact, many professionals and pundits did just that, proclaiming that brands were dead or that investing in growth companies no longer works. |
| The only defense against such wrongheaded thinking is strong, deep knowledge of the companies in which one invests. By staying focused on the goal of investing wisely, considering quality, cash-flow, market-share and franchise characteristics, an owner of the companies above enjoyed dramatic performance above the Standard & Poor's 500. But his goal was not to beat an average; it was to invest intelligently. |
| To us at Aletheia, intelligent investing is about uncovering the truth. Aletheia's search for investment truth necessarily leads to and through the businesses and people creating that truth. Aletheia concerns itself with business and corporate insiders. We research individual companies and their prospects, relentlessly pursuing opportunity. In our investment process, we spend a great deal of time with our proprietary research contacts and our extensive board of advisors.
We at Aletheia believe our final research product, based upon strong insider behaviors, strong industry research and our exclusive resources, to be without peer.
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| Because our research is proprietary and depends on non-traditional information channels, it helps us reduce risk for our customers. Since we are often buying things misunderstood or mispriced by Wall Street, expectation levels for many of our investments are very low. Many times, securities we purchase have suffered significant declines, thereby reducing much risk before we buy them. At the same time, most of the business insiders we track or work with are seeking dramatic returns on their invested capital. We think our investment process thus reduces risk while substantially increasing prospective returns. |
| Our goal at Aletheia is to achieve extremely high absolute returns over time. We seek to obtain this goal by applying our knowledge effectively. We further expect to accomplish this without increasing risk and in spite of expected market volatility. |
| Our investment philosophy and strategies insure that we successfully execute our most important responsibility, that of providing the finest service and exceptional results for our clients. |
