Smart Money Circle Show
Featuring Allen T. Bond, CFA, Managing Director, Head of Research & Portfolio Manager
Hosted by Adam Sarhan
Jensen’s Allen Bond joins the Smart Money Circle Show to discuss quality investing, stock valuation, how to manage risk, timeless lessons learned over his career and more.
From the podcast:
SARHAN: How do you handle risk and what are some mistakes you see with respect to risk management that people make?
BOND: The way we look at it as long-term investors is that there’s three risks that we face primarily. The first is business risk. And I think that the interesting thing about that question to us is that we generally think about equity investing in terms of risk. You won’t hear us talking a lot about we’re going to buy this stock at 50 because we think it’s worth 100 and we’re going to sell when we get 100. I mean obviously that’s all implicit, but it’s not something that really drives our decision making. We’re really trying to manage risk. And so business risk, well, we can mitigate that by owning high-quality businesses that have sustainable competitive advantages, that have financial strength, and that have a strong track record of execution. And that’s really a critical thing is. Again, we’re going to focus on proven businesses, not hopeful businesses, if you will. We think we can manage business risk in that regard. And then knowing our businesses really well.
The second risk is pricing risk, and that’s what we just talked about with valuation. That’s the risk that you pay too much for a stock. And so maybe the business has a really bright future, but you paid for the next 50 years of income and really you should only be paying for the next 10. So that’s the risk. And that could be one of those situations like you talked about earlier, where the business is doing well, but the stock’s not doing much. So we mitigate that risk by making sure we have a long-term full value target, and we will make sure we pay a discount. We think about that in terms of that classic margin of safety, but also trying to make sure that we’re buying the shares at a price where we think there will be good traction over time between the share price and the business value that’s being created. …
Listen to the podcast above, watch a replay on Smart Money Circle’s YouTube channel or download the transcript here to learn about the third risk.
Definitions
Beta: A measure of the volatility of the fund’s total returns relative to the general market as represented by a corresponding benchmark index of the fund. A beta of more than 1.00 indicates volatility greater than the market, and a beta of less than 1.00 indicates volatility less than the market.
Active Share: A measure of the differentiation of the holdings of a portfolio from the holdings of its appropriate passive benchmark index.
The Jensen Quality Growth Fund’s, Jensen Quality Value Fund’s and Jensen Global Quality Growth Fund’s investment objective, risks, charges and expenses must be considered carefully before investing. The statutory and summary prospectus for each fund contain this and other important information about the investment company, and they may be obtained by clicking a link below or by calling 800.992.4144. Read it carefully before investing.
Jensen Quality Growth Fund Prospectus
Jensen Quality Value Fund Prospectus
Jensen Global Quality Growth Fund Prospectus
Mutual fund investing involves risk, and principal loss is possible.
The Jensen Quality Growth Fund is non-diversified, meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual stock volatility than a diversified fund. The prices of growth stocks may be sensitive to changes in current or expected earnings, may experience larger price swings and may be out of favor with investors at different periods of time.
The Jensen Quality Value Fund invests in mid and smaller capitalization companies, which involve additional risks such as limited liquidity and greater volatility.
The Jensen Global Quality Growth Fund is also non-diversified and invests in foreign securities that involve political, economic and currency risks, greater volatility, and differences in accounting methods. These risks are greater for investments in emerging markets.
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