EQR was developed according to Alpine’s published investment principles and is managed exclusively by Alpine Capital Research LLC, an affiliate of Alpine Private Capital. All strategy investments are required to be consistent with these principles.
EQR objectives are to provide satisfactory absolute and relative results in the long run, and to preserve capital from permanent loss during periods of economic decline.
“Satisfactory absolute results” means earning a return which is fair when considering the risk taken. Each stock is assigned a “required return” which reflects its risk. This is also the return (or discount rate) which equates its present value with its future dividends or free cash flows. “Absolute” means the return is related not to the general stock market, but to the specific rate chosen which reflects the stock’s risk. The objective is to generate a sound absolute result in the long run regardless of general stock market returns.
“Satisfactory relative results” means a return which exceeds the market average over a full market cycle, typically from seven to ten years. The EQR strategy benchmark is the S&P 500. The S&P 500 was chosen because it best reflects the quality of the holdings selected for the strategy.
Returns may vary widely, either positively or negatively, from the absolute expected return and the S&P 500 in the short run. Stock portfolios are not constructed to minimize volatility or return differences from the market. The focus is on selecting the highest returning individual issues for the long run rather than focusing on short-term fluctuations among groups of stocks. The evaluation of returns presents only half the picture. Risk must also be evaluated. While return data can be generated easily, the quantification of risk is difficult.
“To preserve capital from permanent loss during periods of economic decline” means selecting companies that can withstand difficult economic conditions. Permanent loss occurs when a large portion of a company’s assets or earnings becomes permanently impaired or when an unexpected bankruptcy or liquidation occurs. The nature of a company’s business and its financial strength are carefully evaluated to determine its ability to weather adverse economic conditions.