Investment Philosophy

Investment Management of Virginia's philosophy centers on one core thesis - buying quality businesses at attractive valuations.  Our main goal is to produce attractive long-term investment returns for our clients.

"Quality" is a critical characteristic of any company we consider adding to the portfolios.  We determine quality by the sustainability of a company's business model, the strength of its balance sheet, and the stability of its cash flows.  In considering company quality, we also make judgments regarding management's experience, skill, motivation, and honesty.  Finally, we buy these businesses at valuations that should provide a "margin of safety"; we seek only those opportunities where the portfolio managers believe the risk and reward favor an above average long term return. Our philosophy extends across all capitalization sizes and is designed to minimize the business risk inherent in a company and the price risk inherent in the market.

IMVA’s investment styles (Large Capitalization Core Equity, Large Capitalization Balanced, Large Capitalization Growth Equity, Select, Small/Mid Capitalization, and the Energy Portfolio) incorporate these core themes.  We are looking for attractive risk-to-reward opportunities in companies whose quality and strength are undervalued by the market at the time of investment.     Each portfolio has, for its style, different investment parameters and risk tolerance objectives.  While these investment styles may focus on small and/or large capitalization securities, they are generally not limited to strict growth or value classifications.

Business Analysis

We utilize computer screening and other quantitative methods to reduce a large universe of companies to a manageable list of opportunities.  From that list, we conduct a fundamental review of a company’s business to assess its quality.  Simply put, we want to get to know the company and understand the risks involved with owning the business.  This process involves a thorough analysis of the key drivers of business operations, business strategy, management’s integrity and vision, financial strength and stability, along with a determination of the strength and trend of current and future income and cash flows.  Our intent is to gain an understanding of the level of risk involved in the business (business risk) and to determine if the given company qualifies within the guidelines of our investment parameters. That is, would we want to own the business and does it add value to the total portfolio?  Yet this analysis alone does not warrant an investment.

Stock Price Analysis

Buying even the highest quality stock at any price cannot be justified.  As such, the IMVA process places a heavy emphasis on “price risk” analysis.  After analyzing current and prospective trends in the growth metrics of earnings, dividends, book value, sales, and cash flow, we then make a comparative analysis of historical price range measures.  From this evaluation, we make a determination as to the present risks in the current pricing of a stock.  While not a perfect science, our strategy seeks first to eliminate as much of the price risk as possible in order to increase the probability of capturing attractive capital gains.

Fundamental Analysis and Process

The IMVA fundamental analysis and research process is designed to accomplish a number of objectives.   First, we evaluate the intrinsic business to make sure it meets our quality hurdles.   Second, our strategy specifically is geared toward finding opportunities where stocks of quality companies have been undervalued, giving investors a "margin of safety".  The causes of such mis-valued stocks are most frequently excessive fear in the marketplace or temporary business disruptions that can be fixed.  Only after extensive study, evaluation, and a clear understanding of a company and its stock, can one confidently address the worries of the marketplace.  Lastly, inherent in the IMVA strategy, broad themes and assumptions materialize around the expectation of future business achievements, resulting in the development of specific targets or “hurdles”.  From these expected hurdles, we can make judgements as to whether an un-rewarding investment is the result of being too early, too late, or just wrong, and can take the appropriate action.  

Portfolio Construction

The first step in managing a portfolio is to understand our client's goals.  Each client’s needs and objectives must be thoroughly understood, taking into account tolerance for risk, income needs, tax considerations, time horizon, as well as other client-specific factors.  We then match a client with one or more of our portfolio strategies.  Our mission for each client is to deliver competitive and positive investment returns over time while adhering to the parameters of our investment beliefs and disciplines.  Flexibility in satisfying special or unique client needs is an integral part of the assesment process.

Risk Management

Across all disciplines, IMVA’s first level of risk management places a high importance on providing a sound margin of safety.  We take great care to make initial stock investments at a price we believe is a meaningful discount to the intrinsic value of the business.  As stock prices advance, we continuously evaluate the stock’s return potential versus downside risk.  We will trim or sell a position when our target prices are met or a particular position grows excessive relative to the rest of the portfolio. 
 
We also maintain a sell discipline when a particular investment does not work as expected.  We will formally re-evaluate an investment if unexpected earnings shortfalls occur, if management integrity issues arise, or if fundamentals otherwise deteriorate.