Summer 2024
Management Matters Most
People make money, things don’t.
Our singular investment focus is to identify profitable, growing businesses that are managed for the benefit of their shareholders and run by management teams who are determined to leave the company stronger than they found it. Confidence in a company’s management is a prerequisite for us to invest in its stock. We meet with and evaluate different levels of management to determine how and why past successes were achieved. Proven, straightforward management teams focus on execution of an achievable business plan.
Career Moves
We track the career moves of successful managers of our portfolio companies. Their decision to lead a business suggests that it is worth further investigation.
Departures
We watch the effects of senior managers’ departures on the company’s performance. High management turnover suggests deeper fundamental issues.
New Managers
New senior managers present an opportunity to invest in well-run companies that we do not own, if we believe they can maintain or improve existing performance. We sell our positions in companies where new managers undermine a company’s successful operations.
It is essential for us to know the character and capability of a company’s management team before we invest in its stock.
Our Perspective
When Satya Nadella became Microsoft’s third CEO in 2014, he brought a clear vision to transform Microsoft from a collection of siloed businesses into a unified and growth-oriented cloud services company with a more open and customer-centric culture. He successfully removed long-standing organizational barriers and launched new partnerships with other leading tech companies and former adversaries. Within five years, enterprises and software developers viewed Microsoft as a provider of essential technology on which to build their own technology and improve productivity. Microsoft’s cloud business has grown at a stunning annualized rate of 56% during Nadella’s tenure and now accounts for 53% of company revenue, or $112 billion in its most recent fiscal year. Nadella’s success improved profitability too with the company’s operating margin expanding from 32% in 2013 to 42% in 2023.
BEYOND PORTFOLIO MANAGEMENT
Checking accounts with Capital Counsel
Our clients can streamline their financial lives and level-up their banking service by moving their checking accounts under Capital Counsel’s purview with Corestone checking through Pershing. Clients will find a more personalized, high touch checking experience when moving their accounts from other financial institutions to Capital Counsel. Clients may earn a higher yield in the money market fund offered on Pershing’s platform. Capital Counsel’s service team sees real-time checking transaction activity, can place stop payments on checks, cancel/order a new debit card, notify the bank of travel dates to prevent false fraud alerts, order check books, etcetera. Capital Counsel’s exemplary client service extends beyond portfolio management. Our team is empowered to provide accurate, timely responses for all of our clients’ checking needs. Contact us today to learn more.
CAPITAL COUNSEL NEWS
Capital Counsel will mark 25 years in business in October 2024.
Capital Counsel welcomed a new employee, Ryan Messer, in February. Ryan will support our trade operations and client service team. He graduated from Tulane University in 2023.
Justin Berrie, Partner, Portfolio Manager and Analyst, ran the Tokyo marathon in March. This was Justin’s first time running in Tokyo and his 11th marathon overall.
ABOUT CAPITAL COUNSEL
Founded in 1999 by F Randall Smith, Terence Greene, James Magid, and Lauren Blum, Capital Counsel is an independent investment management firm based in New York City. We manage concentrated portfolios of large-cap and mid-cap companies based in the U.S., or those with large U.S. operations. We choose these stocks from ideas generated through the investment team’s in-depth, bottom-up research efforts. Our disciplined investment process requires us to focus on how management teams run their company. Our clients include high-net-worth individuals and their families, foundations and endowments. The source of wealth for many of our clients is ownership in successful businesses. Some are former executives of companies held in our clients’ portfolios, who have become clients because they understand and respect our investment process.
Capital Counsel’s investment strategy combines disciplined fundamental analysis with patient execution. Stock selection is at the core of our investment strategy. We seek to invest in profitable well-managed companies that generate recurring free cash flow. These companies possess strong balance sheets and earn attractive rates of return on shareholders’ capital. We know the companies and their proven, execution focused management teams well. They deal with problems openly and effectively, and have incentives aligned with shareholders. We evaluate the company, as an informed private buyer might, to determine the value of the business based upon its ability to generate free cash flow. We manage concentrated portfolios which have provided our clients with good long-term results. Since our inception we have cumulatively outperformed the S&P 500 with reduced risk.
Disclosures
Past performance is not indicative of future results. Different types of investments involve varying degrees of risk. All information provided herein is for informational purposes only and should not be interpreted as an offer or provision of investment advice, a recommendation to buy or sell specific securities, or a substitute for personalized advice from Capital Counsel. Capital Counsel does not offer tax or legal advice; readers should not consider the contents of this newsletter as legal or tax advice and should consult their own legal and tax professionals. The information contained herein represents the views of Capital Counsel at a specific point in time, which are subject to change as market conditions, legal requirements, and information available to use evolve. Where market and index data are presented, they have been obtained from FactSet Research Systems, unless otherwise noted. Capital Counsel assumes no responsibility for the accuracy of this data. A full discussion of Capital Counsel’s advisery services and fees is available in our Form ADV Part 2 brochure, or on our website here capitalcounsel.com/Form-ADV.
Capital Counsel and other investment advisers who manage assets above $110 million must register with the Securities & Exchange Commission (SEC) to comply with the Investment Advisers Act of 1940. Registered investment advisers (RIAs) provide advice about purchasing and selling securities to their clients and have a fiduciary duty to their clients to always act in their best interest.
Broker-Dealers (BDs) must register with the SEC and are regulated by the Financial Industry Regulatory Authority (FINRA). BDs buy and sell securities for their clients or their own account. BDs can earn commissions for each transaction where Registered Investment Advisors usually charge a fee on the assets managed. BDs are required to make suitable recommendations based on their clients’ risk tolerance and investment experience. Unlike Capital Counsel, they often hold client assets in brokerage accounts which are not necessarily segregated from the BDs’ other assets. Capital Counsel’s client assets are held by independent custody banks.
Yes. Capital Counsel is a registered investment adviser and is regulated by the U.S. Securities & Exchange Commission under the Investment Advisers Act of 1940.
Capital Counsel, founded in 1999, is an independent investment management firm based in New York City. Terence Greene and Lauren Blum are investment managers who have worked together at Capital Counsel since the inception of the firm in 1999. Justin Berrie joined the team in 2009 and became an owner in the firm in 2015. In 2020, Samuel Magid and Matthew Friedman also became owners in the firm. This continuity in leadership has strengthened our intellectual rigor and investment discipline, greatly benefiting our clients.
We are dedicated to helping our clients achieve their personal and financial goals by investing in consistently great companies and providing thoughtful, long-term guidance.
Yes. We invest our assets, including the firm’s profit sharing plan, alongside those of our clients.
No, Capital Counsel is a fee‐only Registered Investment Adviser. Our interests and incentives are aligned with our clients and we receive fees based on the market value of the assets we manage for our clients.
