Del Principe | O’Brien Financial Advisors, an Indianapolis-based registered investment advisory firm, recently released its August 2019 Investor Letter – a copy of which you can download below.
Founded by Joseph Del Principe in 2015, the company’s services include financial planning, investment advisory, and portfolio design. Its client base is composed of businesses, charitable organizations, estates, high-net-worth and private individuals, not-for-profit entities, pension trusts, and trusts.
Joseph Del Principe is an alumnus of Chaminade University of Honolulu and the University of Hawaii at Manoa. His expertise includes customer service, financial planning, leadership, and strategic planning.
In its August 2019 Investor Letter, the firm reported a 7.1% yield for Q2 2019 (excluding redemption) and highlighted realized gains, which produced high ROI, from ownership of the following stocks: Qualcomm (QCOM), The Middleby Corporation (MIDD), Danaher Corporation (DHR), AMETEK, Inc. (AME), Roper Technologies, Inc. (ROP), Fiat Chrysler Automobiles N.V. (FCAU). Other highlights include a few mergers (Colfax Corporation (CFX) and Eagle Pharmaceuticals (EGRX)) and acquisitions (Brookfield Asset Management Inc. (BAM) and Alibaba Group Holding Limited (BABA)) that should strengthen the portfolio. Additionally, Del Principe included a reflection on the 5 Methods of Capital Allocation.
“Wasn’t it just yesterday we were talking about how December 2018 was the worst month for the Dow and S&P since 1931? In just a few months’ time, the pullback ended, the market was back up, and we started seeing substantial gains in our investments. Though we’re happy to be back on this side of things, the swing from panic mode (for some investors) to big gains is evidence yet again of a market that is neither rational nor efficient.
And so, what do prudent value investors do when times are “good”? We focus on managing our gains and making them continue to work for us. That’s what the best CEOs do when their companies have more cash thanks to realizing gains. In fact, when we’re analyzing a company that we think might be worth investing in, we look to see how the CEO is allocating capital.
Capital Allocation: 5 Methods
Pick up a book written by a CEO and you’re likely to get a heavy dose of how they manage the operations of their company as well as the philosophy that underlies their decision making. No doubt these are important factors in the success of their companies, but another less discussed—and not often mastered—business management skill is capital allocation. That is, CEOs must decide how to deploy their company’s resources to earn the best possible return for shareholders.
Essentially, there are five ways a CEO can deploy capital: invest in existing operations; acquire other businesses (“mergers & acquisitions”); pay down debt; repurchase stock (“share buybacks”); and pay dividends to shareholders. Each method can yield powerful results. One method is not necessarily better than the other, but the best CEOs recognize when the time is right for a certain capital allocation method. We will examine the risks and potential benefits of each of these five methods in future letters.”
You can download a copy of Del Principe Obrien Financial Advisors’ August 2019 Investor Letter here:
You can also see the list of our 2019 Q2 investor letters and download them on this page.