Lower risk investing.
Avenue believes that boring and predictable ‘quality’ investments are safer, when our shared goal is to compound our client’s wealth as consistently as possible with lower risk. This gives us the highest probability of getting a consistent rate of return no matter how the economic environment changes. Financial stability does not come from trying to beat the market when our true objective is to make sure your money is safely invested and there when you need it.
Customized, not complicated.
We build each client an individual investment strategy, carefully considering how much stock market vs. bond market exposure is appropriate. The selected investments are placed in the right type of accounts (whether registered, non-registered or corporate) given the clients tax situation. And we keep the bond and equity portfolios separate to accurately measure performance.
A long term understanding of risk is the key concept behind our asset allocation decisions. The starting point is that everyone should be 100% invested in the stock market for the long term. However, if you need some of your money to live on in the short term, we like to have 5 to 7 years of fixed income to cover annual income needs. Alternatively, if you’re uncomfortable with the fairly common swings of 20% or more that the stock market naturally produces, we can allocate to bonds (but bond investors should understand that there can be a loss of purchasing power over time.)
Lower risk equities = more reliable returns over time
Stable ‘quality’ investing shouldn’t be a secret. The idea is simple. A bird in the hand is always safer than two in the bush.
We are not spending our time guessing when to get in and out of markets. Our research team works hard to find and invest in great businesses that produce stable income streams. If you are not invested, then you are not compounding. (But of course, your money is yours at any time you want or need it back.)
It is easy to compare returns in the investment industry but it is very hard to show how much risk was taken to get the returns. Often you never know how much risk you are taking until it is too late.
How do we lower risk?
We start by focusing our research on quality companies or assets.
The businesses we invest in need to be profitable, consistent and well-run, with a conservative level of debt. However, there are occasionally special situations where we find undervalued assets or businesses that are in the process of being fixed up.
Don’t overpay for the investment.
We have a disciplined approach to valuation. When we find a quality investment and it isn’t trading at a fair price, we simply don’t buy it. At Avenue investing is about patience and knowing that a successful investment starts with buying it at a fair price.
Build in a margin of safety.
A margin of safety is built-in insurance against uncertainty in the market, at every level of the investment process. We run our own in-depth analyses and research to keep you safe.
The Avenue margin of safety.
The market: We assess the overall stock and bond market risk. To put it simply: if sentiment is negative, we increase our exposure; if sentiment is positive, we build in caution.
The sector: We can own more or less of a given sector based on the overall sector valuation.
The stock: Core companies can be added at 3.5% holding, but non-core companies are limited to 2% of the portfolio. If the stock rises, we can cut back the position. If it falls, we can add—as long as the business fundamentals remain positive. Longer term thinking often requires patience. However, if any investment falls by 20%, our discipline requires us to conduct a full review of the fundamentals of the business and decide whether to keep or exit the investment.
Well balanced bonds.
A Canadian bond portfolio is for people who need income and safety. Our investment strategy has a bias to Canadian corporate bonds.
One key to investing in Canada is the corporate bond market. Over time, we can capture a higher return than government bonds, but with only a slight incremental risk.
Up to 20% of the portfolio can be invested in high yielding special situations. These can be bonds, REITs or high income stocks.
We do not rely on other people’s opinions. We do the credit analysis ourselves. We balance the portfolio with government and provincial bonds when needed.
Is this buy-and-hold investing?
We like to call it quality investing, by limiting the downside of investments and winning by not losing. A great investment is one we can hold for a long time. However, in the real world, situations change. On average, we hold an investment for about 5 years.
Does Avenue use derivatives?
No. We believe regular stocks and bonds can give us the best risk-adjusted rate of return.