The investment philosophy of Linde Equity Investment Counsel is based on the premise that companies generating a consistently high return on equity will achieve above average share price appreciation over time. As Warren Buffett's favourite investment metric, a high return on equity contributes to:
1. Superior earnings per share growth
2. Above average dividend growth
3. Strong balance sheets
4. Greater free cashflow to finance growth
These traits can be found in both mature and dynamic companies, both of which are a primary focus of Linde Equity's research. Mature and dynamic companies can be distinguished as follows:
Mature
- Dependable, high quality companies
- Predictable and consistent growth
- Steadily rising dividends
- Mid to large sized companies
Dynamic
- 'up and coming' companies
- Greater upside potential
- Typically pay no dividends, reinvest all profits
- Smaller sized companies
The vast majority of Linde Equity's clients' portfolios are weighted towards mature companies with a handful of dynamic companies to provide additional upside.
Linde Equity also uses proprietary screening formulas to uncover companies trading at discounts to their historical or expected level of valuation. Key ratios used in determining valuation include price to earnings, price to book, price to sales, price to cashflow and other ratios depending on the company and industry.
Linde Equity also seeks companies that display the following characteristics:
- Strong customer loyalty
- Recurring revenue business model
- Sustainable competitive advantages
- Highly regarded management team
Minimizing capital gains taxes is another priority at Linde Equity Investment Counsel. Once a client's portfolio is fully invested, annual turn over is generally less than 20%. This keeps commissions down, enables our clients to get to know their companies better, and contributes towards greater tax efficiency with their investments.
Linde Equity also places emphasis on taking advantage of volatile investor emotions. Since human beings tend to behave excessively in response to monetarily driven sentiments, namely greed and fear, individual stocks and the market as a whole are often pushed to euphoric highs or depressed lows. The enormous price swings which often result provide tremendous investment opportunities for the astute investor.
“I cannot promise you that every stock I recommend will go up. However, I will promise to stay focused on a method of stock selection that, on average, appears to work. It is a method influenced from my studies of the investment styles of Peter Lynch, Warren Buffett and more recently Bill Miller. You too could learn their ways. However, to successfully implement their approach requires at least 3 to 4 hours of securities research per day. If you are able to do this, great! But, if you would rather spend your time enjoying other activities, I welcome you to consider retaining Linde Equity as your advisor and I’ll do the research for you.”
- Teal Linde