We are conservative long-term investors and not active traders. We seek to identify companies with wide and sustainable “moats” (i.e. competitive advantages) that are attractively priced. We concentrate on our best ideas. As a consequence our portfolios typically hold approximately 15-20 common stocks.

Investments go through ACPI, a member of IIROC and CIPF

Our clients entrust with the management of their savings. It is not a responsibility that we take lightly. We consider ourselves a steward of our clients’ money. In all of our investment decision-making we put considerable thought into the potential downside. To borrow a phrase from the great Warren Buffett, we are as concerned about the return OF your money as the return ON your money. The ways that we protect your capital are twofold. First, we restrict our investment universe to shares of high-quality companies (more on that later). Second, we are disciplined in the price that we are willing to pay. We like to buy straw hats in winter.

Our process is often described as “value investing”. This is a term that is used by some to indicate an approach to investing that entails a focus on low valuations (i.e. low P/E multiples, low P/B ratios, etc.). On the use of this term, we agree with Warren Buffett…

Our focus is on shares of companies that have certain characteristics. Specifically, we are interested in companies that possess what is often referred to as a “wide moat”. This term derives from imagery used by Warren Buffett to explain the concept of competitive advantage and is meant to signify an enviable market position that is difficult for competitors to attack. Moats are competitive advantages that allow companies to earn an above-average return on invested capital. Following are two examples:

**Please contact your advisor to discuss the current investment environment of mentioned securities and the appropriateness of the investment for you.**

CN’s moat derives from its monopoly-like position in a market that is important to the functioning of the economy. As well rail transportation has a cost advantage over competing modes of transport. It is highly improbable that a competing National rail network will be built in Canada.

On that point, listen to Morningstar analyst Keith Schoonmaker, “Class I railroads have in place networks of assets and rights of way that are nearly impossible to replicate. The Canadian National system is a unique three-coast, T-shaped network, spanning Canada from east to west and stretching from north to south in the Midwestern United States. CN’s rights of way and installed track form a nearly impenetrable barrier to entry. We think there will be no new railroads built in North America, although line extensions by existing railroads (including restoring abandoned lines) may take place in select areas once the economy recovers”.

As a result of its moat, CN is highly profitable and has rewarded shareholders with a growing stream of rising dividends.

UPS is the world’s largest parcel delivery company. UPS uses more than 500 planes and 100,000 vehicles to deliver on average 17 million packages per day to residences and businesses around the globe.

UPS earns its wide economic moat from its extensive network and dominant market position. To replicate UPS’ network of trucks, trailers, terminals, sorting equipment, IT systems, etc. would be extremely difficult and would require that the new entrant endure years of financial losses in an effort to reach the scale necessary to attain profitability.

MorningStar analyst Keith Schoonmaker commented on UPS’ moat in a January 30, 2014 research report, “Replicating these assets in the absence of sufficient package flow would be costly, and few entities would endure the financial losses during the necessary density-building phase. As evidenced by DHL’s worthy effort [i.e. DHL Deutsche Post is large shipping concern in Europe. In 2007, DHL abandoned its effort to compete with UPS and FedEx in the US market having sustained $1 billion in losses] such a project would require at least a decade of effort. Even a global shipping powerhouse like DHL failed to displace UPS and FedEx on their massive home turf–these two competitors comprise the efficient scale in high-service U.S. domestic parcel delivery. In this high-fixed-cost business, the substantial parcel volume handled by the incumbents provides a cost advantage that makes competing at market prices difficult for low-volume entrants”.

Our process is to identify companies with sustainable moats that generate a growing level of “free cash flow” (i.e. roughly, the money that is left over after all of the bills have been paid and provisions made for capital expenditures). Free cash flow can be used to buy back shares and / or pay an increasing level of dividend.

We are particularly interested in “compounding machines” (i.e. companies that can reinvest retained earnings at high rates of return). Typically, the companies in which we like to make investment are large-capitalization industry leaders that have a long track record of growing their earnings and dividends.

We are patient and opportunistic investors. We are inclined to wait for those rare occasions on which shares of high-quality companies can be bought at low-to-fair valuations. These opportunities are rare; great companies are rarely mispriced. However, all companies inevitably hit a rough patch and fall from favour.

We concentrate on our best investment ideas and are inclined to own shares of 18-20 companies in which we have a high level of conviction. We feel that this number of holdings allows us to focus on our best ideas and adequately diversify our clients’ accounts.

We are buy-and-hold investors and not traders. It can be tempting to engage in short-term trading strategies but in our experience it is far better to “buy right and sit tight”. To some, it may seem counterintuitive, however we firmly believe that “short-termism” and its bedfellow, buy and sell activity, are the enemies of investors. There is an old adage that goes, “Your portfolio is like a bar of soap – the more you touch it the smaller it becomes”.

We believe that in investing, simplicity trumps complexity. However, we are reminded by Warren Buffett that “simple does not mean easy”. In summary, we use a simple checklist in identifying potential investments:

Does the company have a sustainable competitive advantage?
Is there some degree of uncertainty or mispricing such that the shares are attractively valued?
Is the company shareholder friendly (i.e. is rewarding shareholders one of the company’s priorities)?
What are the company’s growth prospects?

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