Peridot Capital Investment Philosophy

We Create Personalized Investment Plans for Clients

No two client portfolios are exactly the same at Peridot Capital. Rather than fit our clients into a pre-existing portfolio that we created, our first task with a new client is to listen to them and ask questions in order to determine what exactly their investments need to do for them in order to reach their financial goals.

For younger clients that may mean a diversified portfolio of stocks that will ebb and flow with the market. For middle aged clients that may mean reducing day-to-day volatility to ensure that the assets they have built up after years of working full-time do not disappear should the economy take a turn for the worse. For retirees it may mean working toward a certain target return per year which will ensure that they can live comfortably and will not outlive their money even if they live well into their 90's.

No matter a client's individual situation, we will work to craft a plan that maximizes the chances of reaching their personal goals and do so with the least amount of risk that we can.

We Have No Conflicts of Interest

The hidden secret in financial product sales is that most brokers earn commissions for selling their clients certain products from certain companies, and that is what they recommend to everyone. Are annuities extremely popular because they are superior products? Not at all, they have some of the highest sales commissions in the industry. Does a broker focus on a select few mutual families because they are the best fund managers? Unlikely. More typically the brokers employer gets paid kickbacks from the fund companies themselves based on how much money their clients have invested in their funds, a portion of which his paid out to the brokers making the sales. Even brokers who deal in individual stocks often get paid a percentage of the commissions they generate, giving them an incentive to buy and sell, not deliver strong returns from those trades. (they make the same regardless of how well the stocks perform).

Peridot Capital has never and will never accept a single penny from any brokerage firm, insurance company, mutual fund company, or provider of any other financial products provider. Fully 100% of our compensation for investment management services is paid directly to us by our clients. This policy allows us to uncover, research, and choose from every investment options available for our clients, which allows us to go anywhere to meet your investment objectives.

We Believe in Active Portfolio Management

Many investment pundits believe that investment managers cannot beat the market consistently and therefore should not even try. They recommend coming up with a desired asset allocation and then investing in index funds. At Peridot Capital we believe that great managers can beat the market (does the name Warren Buffett ring a bell?) and our track record bears this out. It is true that studies have shown that 80% of mutual funds lag their market benchmark, but just because such a task is difficult does not mean that it cannot be done or should not be tried. Frankly, the people who say you cannot beat the market are usually the ones who have failed to to it themselves. Conversely, there are hundreds of successful investment managers who have long track records of market-beating performance.

While Peridot Capital will never succeed in beating the market each and every month, quarter, or year, we believe that we can deliver market-beating returns far more often than mutual funds and stock brokers (where four of of five fail) and by doing so can provide clients an extremely valuable investment management service.

Just how valuable? Consider the chart below, which shows just how much of a impact beating the market do a couple of percentage points per year can translate into outsized wealth. This example shows how much wealth can be amassed by investing $5,000 per year for one's entire working life (40 years). With the stock market averaging about 10% per year return over the long term, most mutual funds will lag (say, 8% per year) but outstanding mangers who can beat the market by just 20% (12% per year) can result in added wealth creation in the millions of dollars!

We Take a Value-Oriented, Contrarian Investment Approach

Peridot Capital manages client accounts using a long term, contrarian, value-oriented investing approach. Our strategy is based on historical stock market data dating back to the 1800’s which shows a direct inverse correlation between stock valuations (measured by price-earnings, price-to-sales, price-to-book, and price-to cash flow ratios) and future share price performance. Simply put, the better price you get when you buy something, the higher the future return, on average.

When looking for new investment opportunities, our core strategy is to focus on stocks that the market is shunning in the short term, resulting in depressed share prices. With each passing day Wall Street is becoming more and more focused on the short-term. In the age of hedge fund day traders and the rapid electronic exchange of information, people react quickly and strongly to new information which dramatically affects day-to-day price movements in the market.

This presents longer term investors with plenty of opportunities to find bargains. At Peridot Capital we seek to take advantage of this ill-advised obsessiveness over the short-term. Our best investments are made when we find a strong company that has a bright future but has hit a temporary speed bump. When the bar for a company has been set very low, the odds of its future performance exceeding expectations are high.

Over time, as investors see the true underlying fundamentals of the company, the stock should rise to a more reasonable estimate of fair value and substantial profits can then be realized. We typically share the common definition for "long term" investing as meaning "3-5 years" or more, but predicting what the business landscape will look like 5 years from now is very difficult. Most of our investments have catalysts that should result in upward revaluation within 1-3 years of purchase.

We Believe the Importance of Valuation Cannot Be Understated

The following example illustrates why investing in companies that are simply doing well, without regard to the price of the stock, can often lead to disappointing investment returns. Consider Wal-Mart in 1999. The retailing giant was growing rapidly and gaining market share with everyday low prices and the stock was a favorite among investors, due to its perception as a great company.

What happened? The optimistic view on Wal-Mart's business proved correct and their sales and profits surged. However, investors who bought the stock in 1999 actually lost a lot of money because they overpaid for their shares (see charts below). This is a perfect example of why great companies do not always make great stocks.