Individual Stock Philosophy



The Merrell Brothers follows several of the best investors of all time including Warren Buffett, Charlie Munger, and Benjamin Graham’s core investment principals. The investment selections are independent and fully researched in house by our research team.  The Merrell Brothers spend a significant amount of time researching the investments they acquire for clients. We try to understand the full nuts and bolts of a company before we acquire the investment for our clients.

The core investing principals potentially include:

Buy the underlying business –Merrell Brothers, LLC views the acquisition of a stock as if we are buying the whole company. As investors, not speculators, we view stocks as businesses. We benefit from the cash businesses distribute, their underlying value, and any future growth they may have. We are not concerned with short term volatility and in many cases consider it an opportunity since we believe in the businesses we are acquiring.

Focus on high quality businesses – Merrell Brothers, LLC’s goal is to invest in the highest quality businesses. We try to uncover companies with a strong competitive position in its market, attractive economics, such as high margins, high returns on equity, a strong balance sheet, high free cash flow, low capital expenditures, and a management team that thinks and performs as if they are owners. High quality businesses are attractive because their intrinsic value tends to grow with low volatility through time, and they are not dependent on the capital markets to fund their businesses.

Buy businesses we understand – Merrell Brothers, LLC tries to focus on businesses we understand. The undisputed greatest investor of all time, Warren Buffett, calls this his “circle of competence.” Our portfolio tends to favor companies that we thoroughly understand, specifically the nuts and bolts of their operations. If we have a difficult time describing how the company generates money, we will simply pass on the investment.

Buy with a margin of safety – Merrell Brothers, LLC tries to acquire companies that are trading at a discount to the market or competitors. The principal goal is to locate high quality and undervalued securities that the market has overlooked.

Opportunity in small cap stocks – We tend to find some of our best ideas in small cap stocks because they suffer from a lack of research coverage by Wall Street, and a lack of liquidity, keeping some large investors away. We believe we can continue to find high quality businesses at attractive valuations in the small cap area.

Focus On growing businesses – Merrell Brothers, LLC potentially favors investing in growing businesses for many reasons. We believe growing businesses have more strategic options, since the market rewards companies that are growing with a higher premium, and tend to be able to expand their margins over time. We try our best not to overpay for growth, so we tend to wait for a market or sector selloff to enter an investment.

Opportunity in corporate events – The market regularly provides opportunities from corporate events such as spinoffs, initial public offers, and stock buybacks. These opportunities occur because large investors are either forced into selling or have ignored the ability to profit from the holding.

Concentrated holdings on our best ideas – Merrell Brothers, LLC believe in managing a concentrated portfolio for our clients’ of our best ideas. We have more of a concentrated portfolio than the typical advisor. For our stock portfolios we typically invest in 15 to 25 names and five to ten ETFs for the client wanting broad diversification with an ETF portfolio. We believe a large portfolio of 75 or more holdings loses the benefit of active management.

Investment Philosophy

We may purchase or sell various equity securities and/or ETF’s, which may include, but are not limited to small, mid, and large capitalization securities and international securities. We manage your portfolio with a long-term approach to investing, which we believe is a minimum of five (5) to ten (10) years and preferably longer. For the best overall performance we recommend maintaining your investment with Merrell Brothers, LLC for the long-term.

We follow a strategy of concentrating investments in a fewer number of securities than is typical for most investment advisory firms. We believe this approach allows us to focus on our best investment ideas and that over time this approach is preferable to holding a more diversified portfolio involving a large number of positions. We will potentially make investments in small capitalization and mid capitalization securities, which may be considered a higher risk and higher volatility, but that we view as a better value and candidate for appreciation. Potential investing qualifications include finding investments that maintain a corporate moat, durable competitive advantage, high return on equity, minimal or no debt, high cash and cash equivalent balances, low capital expenditures, and high free cash flows.

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