HCM is a disciplined equity investment manager with a commitment to value investing. Empirical evidence demonstrates that, over long time periods, value investment strategies have outperformed growth strategies. The excess returns provided by value investing are rooted in two related phenomena, irrational investor behavior and a powerful economic force known as reversion to the mean. Common cognitive decision flaws lead many investors to extrapolate a company’s current performance (or latest data point), be it good or bad, too far into the future, thereby inflating the stock price of well-performing companies beyond what its prospects would warrant, while depressing the price of those companies that have good assets but are currently performing poorly.
Economic theory, on the other hand, contends that competition will be attracted to industries that earn above cost of capital returns, ultimately leading to lower levels of profitability and, conversely, capital will exit depressed industries, allowing profitability to revert back to normal levels. The difference between a company’s price based on extrapolation of current trends and the more likely scenario whereby profitability reverts to the mean is the value investment opportunity.
HCM’s believes that its competitive advantages are threefold:
- An unwavering commitment to a value investment philosophy;
- A unique investment process that is unbiased, rigorous, disciplined, and driven by both behavioral psychology and fundamental analysis; and
- The ability to limit assets under management, allowing access to the broadest possible universe when identifying investment candidates.