Investment Philosophy

We firmly believe that growth stocks have an important role in all portfolios.  It has long been our conviction that, by investing in growth companies that are fundamentally sound, we need be less concerned about the market’s short-term volatility and can be more confident, over time, of achieving above-average portfolio appreciation.

The term “growth stock” has varying meanings within the investment profession.  Hartwell defines a growth stock by a company’s ability to generate sustainable unit volume growth while maintaining pricing flexibility.

We employ a disciplined, fundamental, bottom-up approach to investment management. We focus on the company’s financials, industry position, proprietary technology, differentiated products and marketing skills.  Without these competitive strengths, the company will lack pricing flexibility. Manifestations of pricing flexibility are revealed in robust pre-tax margins, excess free cash flow, and high returns on equity.

Our analysis leads us to favor those few companies where the catalysts for future earnings and revenue growth are most well defined. We look for attractive business models run by solid management teams.

Investment Process

Appraise Companies and their Business

  • The investment process at Hartwell begins with a “bottom up” approach examining the fundamentals of individual companies and their industries.  Bottom-up analysis include dissecting financials, management dialogue, on-site meetings, industry cross references, and interacting with sell-side and industry analysts, among others. We seek those companies that exhibit unit volume growth and the ability to maintain pricing power.
  • We focus on the critical variables that are most likely to influence a company’s success or failure.  This process requires an intensive, highly refined analytical effort using multiple sources.
  • Our research efforts are focused on premier growth companies that are leaders in their industries.

Identify the Catalysts

  • We identify, at an early stage, those catalysts which will be material to a company’s growth.
  • Positive catalysts for one company will likely lead to look-alikes, competitors, or suppliers that exhibit similar characteristics.
  • Successful growth stock investing requires the ability to anticipate future growth. We focus on accurately identifying future earnings potential of superior growth companies.

Typical Catalysts Include

  • New products
  • Technological innovations
  • Expansion into new markets
  • Regulatory change
  • Management changes

Portfolio Construction

  • We meet daily to discuss companies and portfolios
  • Initial positions are 2% to 4% of the portfolio.  Larger weighted positions are achieved through performance.
  • Sector allocation is a byproduct of our stock selection; as industries evolve and change over time so do our holdings.  We do not mimic or manage to index weightings.

Monitor the Portfolios and Control Risk

  • We constantly monitor our portfolio companies and their industries to make certain they retain the characteristics that led to their selection in the first place.
  • We recognize that a selling discipline is equally as important as an effective buying discipline.
  • Fundamentals dictate valuation.  We do not set predetermined price targets.
  • When the reasons for which we purchased the stock are no longer valid, we sell.