The Foundation of all our Portfolios

It has been said it takes 10 years to believe half of what you read or hear in the investment business. And, another 10 years to figure out which half. We have found that many widely used conventional practices and beliefs are simply not true. At Golden Eagle, we spend countless hours doing our own research and pouring over statistical data and utilize such findings in our own investment process.

We believe that all types of forecasts on the economy, stock market, and individual stocks has proven to be unreliable in investment decision making. According to the year end 2024 SPIVA Report on 2376 actively-managed funds have failed to beat the S&P 500 over the past 15 years. At Golden Eagle, we never forecast. We study quantitative factors that correlate with superior price performance and incorporate key attributes of top performing stocks into our stock selection process.

Earnings forecasts do not help because they are prone to wide error, and we believe the use of P/E offers nothing of value in regard to stock price direction according to our studies. We rely on sales growth for two reasons. First, the sales metric is more stable than the earnings metric. Second, and more importantly, using the sales metric allows us to capture money-losing companies which often turn out to become some of the biggest winners.

Sometimes the highest rates of growth can occur in the technology sector. At other times, they can occur in the commodity sector, like energy companies in 2022 (the NASDAQ was down 34%, the S&P 500 was down 19%, but the energy stocks went up 66%). Energy stocks doubled in sales growth in 2022, morphed into hypergrowth companies on the key metric that we find drives stock prices: sales growth rate.

We have a long history in managing concentrated portfolios. Mangers having stock picking capabilities tend to hold fewer stocks. Highly diversified strategies rarely make it to the top of the performance list, whereas concentrated strategies often do.

We don’t traditionally hedge because it can reduce returns, but we can box positions to minimize taxable gains. Some strategies use hedging to reduce risk, but that may also reduce returns. The HFRI shows that equity hedge funds have only garnered less than half of the S&P 500 return over the 10 years ending 2024.

Many managers try to time the stock market, which often translates into buying high and selling low. Many studies demonstrate that the best way to beat the stock market is to ride out down performance cycles. We remain fully invested because study after study shows market timing is a losing game.