Companies who control their own destinies (excerpt)

Bryant VanCronkhiteFind out how companies with financial freedom can benefit investors. Bryant VanCronkhite, CFA, CPA, portfolio manager with Wells Capital Management, answers in this excerpt of On the Trading DeskSM from Friday, November 1, 2013. Mr. VanCronkhite is a manager in the mid-cap value space.

Watch the full interview.

What does “companies that control their own destiny” mean?
As individuals we want to be in control of our own destiny. We want the same for companies—companies that generate meaningful levels of free cash flow and a flexible balance sheet or financial freedom. That’s what we’re looking for.

How do you identify financial freedom?
Every company goes into the year with a strategic plan, and they want to execute that plan but their ability to execute often times depends on what’s happening around them. Companies that have financial freedom, or flexibility, can ignore what’s happening around them and do what they want to do based on the plans that they got at the beginning of the year. For example, the market might roll over when demand for business services starts to fall. And as that happens, many companies pull back their spending, cancel their plans, and just play defense. We look for companies who are positioned to play offense. Meaning, when the market is rolling over, they’re buying their stock back at discounted prices or they’re acquiring their competitor when they’re struggling. That positions them well for growth when the market eventually does come back—controlling their own destiny.

So, perhaps looking for more financial freedom is going to be prudent over the longer term. Is that the basic thesis?
Yeah. A company either [has it or doesn’t]. They all want it. Not all of them do. And we only invest in companies that have financial freedom.

You’re a numbers guy aren’t you, a CPA?
I am a CPA, yes.

How does that affect how you look at investing opportunities?
I’ve never thought of myself as a numbers guy. I have a penchant for numbers, but I haven’t thought of myself as a numbers guy, so to speak. As a CPA, it’s really more of a way of thinking. It’s a process that you’re taught, and the process really revolves around being skeptical. I think it’s a perfect mindset for investing. We’re constantly digging for that incremental data point, looking for unusual risks, that next piece of information that’s going to help our investment thesis be stronger and finding hidden value.

I’d love it if you could offer a parting thought for investors.
Sure. There’s a lot of noise in the investment world. If we just focus on companies that control their own destiny and have a reasonable time period, we can survive all the noise and not be distracted by it.

Bryant, thank you so much for joining us here On the Trading Desk.
Thank you for having me.

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