Sometimes we make things more complicated than they need to be. Take investing for instance. One would think that turning $100,000 into $500,000 over the last 20 years would require some pretty sophisticated stock picking skill or an ability to know when to get in and out of the market. After all, there were 3 brutal bear markets during the last couple of decades, 2 in which the market dropped in excess of 40%. However, turning $100,000 in August of 1996 into $489,585 as of June 30, 2015, required only one decision—invest in the IMS Capital Value Fund the day it opened and leave it alone for the next 18 years and 11 months.
No market timing or panicking required. No chasing the previous year’s hot stock or fund. No need to get caught up in the Fund’s star rating, or whether the Fund happened to beat or trail a certain index in a given year. No need to go overseas, hide in gold, fear inflation, Clinton, Bush or Obama. Just one simple decision did the trick— hire a good value manager and let them do their job on your behalf.
When it comes to investing, often times less is more. Less reacting to national news, world events and politics. Less chasing the hot, trendy stocks. Less buying and selling, more buy and hold. Less focus on a particular year’s returns and more focus on the long term and the big picture. How did we turn $100,000 into $489,585 in a little under 19 years? By keeping it simple – buying low and selling high. We focus on the main tenants of value investing just like Warren Buffet and Benjamin Graham, the father of value investing. Of course not every year has been a great year. There have been years like 2015, where we have been in the Wall Street Journal 3 times so far because of our strong returns and there were years like 2004 & 2005 where we appeared in Forbes and Barron’s magazine for the same reason. But there have been some very disappointing years where we finished in the bottom decile of our category. Yet through it all we have stayed true to our opportunistic value roots and looked to spot emerging trends in society and the undervalued companies that were poised to benefit. Value investing, or buying low, is based on simple concepts, however, it can be difficult to execute. It usually involves buying companies when the news isn’t necessarily good. But we’ve always had a knack for being patient and being able to identify situations where the bad news eventually dissipates and then turns into good news. This process allows an unfairly valued company to return to a more reasonable valuation, which can benefit shareholders immensely in the process.
It’s fun to reflect on some of the homeruns we invested in over the years, like back in 2002 when we invested in Marvel, a recently bankrupted comic book company that nobody wanted to touch with a ten foot pole. Years later we sold it for over 7 times our original investment after the first Spider-man movie started breaking box office records and companies like Disney and Time Warner began to look at buying the company because of its valuable library of characters such as X-Men, Incredible Hulk, Fantastic Four and Ironman. It wasn’t a traditional value stock, but it was underpriced based on its intrinsic value or the value that a strategic buyer might pay in the future for is assets. But this type of value investing requires both conviction and patience. Initially, you may have to be willing to own a company that is losing money or has a huge amount of debt. In other cases, it might be a financially strong company that is making money but has fallen out of favor temporarily, like Apple, when it dropped 44% from its high before bottoming in April of 2013. This type of investing is not for the faint of heart and not something we recommend trying at home, but as value managers, we get out of bed every morning and look for situations where the market is underpricing a company’s shares because of some temporary negative news or circumstances. It’s easy to see the current negatives, what is hard-er to do is visualize how those negatives could change and estimate what the company might be worth under more normal circumstances or to an acquirer.
Is it reasonable to expect us to match our past results over the next 20 years? Absolutely. Should you count on it and can we guarantee it? Absolutely not. But after 27 years of value investing at IMS Capital Management, and now with 11 employees, you would think we might be getting better at this and not worse, at least you would hope so! As of June 30, 2015 the IMS Capital Value Fund was up +8.07% YTD, which we are very excited about. But that is a short window of time and we are more excited about the nearly 19-year, since inception re-turn that has nearly quintupled our original shareholder investments. It is extremely exciting for us because many of our long-term clients of our Capital Value strategy and original share-holders in the IMS Capital Value Fund, have actually experienced those returns personally because they did one simple thing – they made a good investment and then did absolutely Nothing. Buy and hold really works! Simply riding out the market’s ups and downs, and ignoring all the noise, actually works. Congratulations to our long term clients and shareholders, it has been a blessing to invest along side you, and we are very pleased that you have been rewarded for your trust, patience and loyalty. We are excited and will make every effort to do even better over the next two decades!
We understand that not all of our clients and shareholders have exposure to our Capital Value strategy or Fund. It may not be appropriate or may not fit a particular client’s approach or risk tolerance. However we decided to highlight it this quarter because it’s success demonstrates our skill and passion for value investing, which influences the entire investment process at IMS. We have several distinct investment strategies that we execute for our clients that span stocks and bonds both domes-tic and international, but our value bias is the common thread.
We encourage you to study the complete performance presentation of the IMS Capital Value Fund below as it represents our value approach in action. It illustrates short, medium and long-term performance. All returns are stated net of fees and expenses, and represent the actual returns shareholders received.
YTD Market Summary
Stocks in general were flat for the first half of 2015. The S&P 500 index was up +0.9%. Bonds lost a little ground, as interest rose slightly. Investment grade bonds were down -0.10%. The 2nd quarter which ended June 30, 2015 was slightly negative for both stocks and bonds. We expect to see softness this time of year especially when the market is near its all times highs. However, by the end of the year, we still expect to see stocks post high single digit total returns, as there are many signs that the economy is broadly strengthening.
Welcome Back to IMS!
Over the last few weeks, we have welcomed back 2 former employees to IMS Capital Management, Inc., Asmita Singh and Mats Nordgren. Many of you will remember them well as they both were employees for several years in the past and worked with clients on various levels. Asmita is in client service and operations, and was formerly with Columbia Bank. Mats is primarily in systems development and network operations, however he also works with clients and executes trades for the firm’s portfolio managers. Mats was formerly with another Portland-based, registered investment advisory firm doing primarily systems development and operations work. Mats and Asmita join Michele Thomson and Pam Palmer to round out our client service and operations team. Please join us in welcoming back Mats and Asmita to the IMS Team.