Process

Portfolio Management Process

Boyle Capital takes a fundamental, research-intensive value approach to investing. The research process is based on a bottoms up analysis (ie. Company specific), although Boyle Capital does include top-down factors in its overall analysis (e.g., how will a company be impacted by a downturn in the economy, a rise or fall in interest rates, etc.).

Boyle Capital generally seeks to make investments in three broad categories of opportunities:

1. great businesses at fair prices
2. good businesses or assets at extraordinarily cheap prices often with a catalyst to realize value
3. mispriced probabilistic investments where the market price of a security under- or over-estimates the probability of a favorable outcome of a legal decision, contract or patent award, or such other event that is expected to lead to a significant change in the valuation of a security.

Our Source of Ideas

The majority of our investment ideas are internally generated through independent research. News services can be a source of new ideas, as well as quantitative screen searches on various databases. Trade shows and conferences may also yield new ideas. Often the best ideas will come from a bottom-up review of a company, its history and its industry, and a reinterpretation of facts and events that other investors have not previously done. New investments may also be identified from existing investments in the portfolio, as we leverage lessons learned in earlier research to uncover additional opportunities.

Our Process for Evaluating an Investment

Once a potential investment appears sufficiently promising, we delve deeply into the historical record of the potential investment and look for sources of comparable data on both public and private companies. This process involves the analysis of corporate reports, press releases, and financial statements, and reviewing documents filed with the SEC or other regulatory entities, court filings, newspaper, magazine, and internet articles, audio or transcripts of conference calls, presentations, and a variety of additional sources. We may also seek to meet with management to attempt to better understand the long-term strengths and weaknesses of the industry or the conditions under which the company operates.

The Process of Getting Invested

Our accounts are separately managed and our focus is on absolute returns. Consequently, we will only invest when we believe an investment’s current price is attractive compared to our calculation of intrinsic value. For new clients, this process may take just a few days – if there are many opportunities in a bear market – or several months, in a bull market. We would rather take our time in making the right choices to limit downside risk than have to apologize later for losses because we responded to an urge to get invested right away. Risk, in our view, is the risk of a permanent loss. We do not define risk as potentially falling behind a bull market benchmark for a few months while the cash is getting invested.

We invest each account individually and do not manage on a “model.” Managing accounts on a model means that every account is fully invested on the first day and holds the same stocks. Boyle Capital does not manage accounts in this way because we feel that it is imperative to not just make the right investment, but it is equally important to make it at the right price. Therefore, we invest accounts one position at a time, and we will only purchase when a company is trading at or below our buy target price. When a company drops into our buy range, it is added to each portfolio. Due to this strict purchase criteria, each account under Boyle Capital’s management may not hold all of the same securities or the same weighting in each security, depending on the inception date of each account. While this process creates a higher dispersion between accounts, we think it makes the most investment sense, ultimately resulting in better performance.

Concentrated Portfolios

Our portfolios typically have between 10–20 companies. This focused approach has several clear advantages. The first advantage is that our winners make a real difference in performance. If a stock doubles in a portfolio of 50–100 companies, the impact on performance will be small. While concentration can be a double-edged sword, our track record has proven that carefully selected companies bought at prudent prices with limited downside risk can result in sound portfolio performance. The second advantage is that our focused approach allows us to leverage our intensive research into our very best ideas.

Risk Process

At Boyle Capital, we do not believe in formulaic approaches to risk management. Our primary risk management tool is the extensive research we complete prior to making an initial investment. We define investment risk as the probability of a permanent loss of capital rather than security price volatility. The factors that we take into account include: (i) volatility/predictability of the businesses (low), (ii) correlation with macroeconomic factors, (iii) financial leverage (minimal), (iv) defensible market positions, and (v) discount to intrinsic value (large). It is our belief that the acquisition of a portfolio of investments, each of which has been acquired at a large discount to intrinsic value, will provide a margin of safety that can mitigate the likelihood of an overall permanent loss of capital.