Investment Philosophy & Process


Our investment philosophy

We believe that the greatest returns are found in stocks reflecting low expectations. As value investors, we focus on areas that are out of favor or overlooked by the broader market. Through a rigorous adherence to our investment discipline, we seek to identify companies that are trading at a discount to their intrinsic value and provide us with a margin of safety in our investment.

Academic focus

Our strategy is based on both decades of industry experience and academic research. Although the most talented investors of the modern age — from Benjamin Graham to Warren Buffett — have followed a value strategy, only relatively recently has a significant body of academic research supported this approach over investing in higher-priced growth stocks. Research by Eugene Fama of the University of Chicago and Kenneth French of MIT shows that value investing has outperformed a growth strategy by an average of 15.5% to 11% over more than three decades. In addition, research shows that smaller stocks have outperformed larger stocks over long periods of time. Baker Ellis follows a flex-value approach, seeking to build value-oriented portfolios that are diversified among a range of set classes but emphasize areas we believe offer the most compelling risk-reward characteristics.

Investment process

We utilize a bottom-up methodology, seeking to identify stocks that are trading at prices below our estimate of their intrinsic value. In analyzing prospects for investment, we focus on cash flow because it is less subject to accounting manipulation than reported earnings. We seek to purchase companies with strong management, good growth prospects and healthy balance sheets.

We build broadly diversified portfolios to minimize individual stock risk and capture favorable returns from a broad variety of asset classes. Depending on client objectives, our accounts may include individual domestic and foreign equities, low-cost passive funds in targeted areas, actively managed funds to take advantage of specialized expertise in certain areas, and fixed-income instruments.

Turnover in our portfolios is low. We believe that wealth is created through long-term ownership of good businesses, purchased at attractive prices. We are not market-timers but seek to lean in the direction of opportunity by emphasizing areas of relative opportunity and minimizing exposure to areas of greatest risk.

Working with us

At Baker Ellis, our six-person team collaborates in the management of each account. Any member of the team can help you at any time. We have no sales people or relationship managers, so you have direct access to your investment team.

Before accepting an account for investment, we develop an Investment Policy Statement that serves as a roadmap for our work together. This document helps guide us in determining an appropriate asset allocation, which is the most critical determinant of investment results.

We manage accounts on an individual basis through a major custodian such as Fidelity Investments. Clients receive monthly statements from the custodian, as well as quarterly performance reports and commentary from us. We meet regularly with our clients to review progress and to make sure that your account reflects your current needs, objectives and investment horizon. We frequently work in cooperation with our clients’ other advisors, including accountants, estate planners and attorneys.