Episode 76: Investing in Quality: A Conversation with Kevin Caron, CFA
In this episode of the “Stuff About Money” podcast, hosts Erik Garcia, CFP®, BFA™, ChFC®, and Xavier Angel, CFP®, ChFC®, CLTC, discuss investing with Kevin Caron, CFA, Senior Portfolio Manager for Washington Crossing Advisors. They explore the firm’s investment philosophy, focusing on quality companies with a track record of consistent growth and profitability. Kevin explains their emphasis on businesses that are well-capitalized, with low debt and attractive valuations, ensuring a focus on durability and predictability.
The discussion also touches on the strengths and limitations of this investment approach, including when it performs well and potential times of underperformance. Kevin shares the metrics used to select these companies and provides insights into current economic events, such as the market’s narrow leadership by the “magnificent seven” stocks and record U.S. equity valuations. Learn how a focus on quality can lead to a strong and resilient investment strategy.
Episode Highlights:
- Kevin reflects on the past 20 years in the financial markets, highlighting the impact of 0% interest rates and stock market growth. (2:42)
- Kevin introduces Washington Crossing Advisors’ investment philosophy, focusing on quality investing and how it differs from momentum investing. (5:23)
- Kevin breaks down Washington Crossing’s proprietary grading system for companies, based on financial stability and asset performance. (12:49)
- Kevin discusses the challenge of evaluating tech companies under their quality standards, and how valuation plays a crucial role. (13:34)
- Kevin elaborates on the impact of volatility on portfolio returns, using the tortoise and hare analogy to illustrate steady performance versus high-risk investments. (23:56)
- Kevin explains how Washington Crossing Advisors assesses risk by focusing on predictable, flexible, and durable companies. (26:26)
- Kevin highlights the importance of building a balanced portfolio with a foundation of conservative, stable investments before venturing into riskier investments. (28:02)
- Kevin shares the composition of Washington Crossing’s investment committee and the importance of math in investment decision-making. (29:57)
- Kevin emphasizes maintaining a quality-focused portfolio to navigate both expected and unforeseen market challenges. (35:42)
Key Quotes:
- “I think that by and large, many people overcomplicate investing, and it doesn’t need to be all that complicated. And the best way to think is like a bond investor, even if you’re an equity investor, because a bond investor asks two simple questions. The first question is whether or not the bond is going to pay me back, and the second question is whether or not I’m being paid to take on the risk.” – Kevin Caron, CFA
- “We know what we do. We know what we don’t do, and our style, because it’s so carefully prescribed, it’s very hard for us to deviate from something once you very clearly define what it is you’re looking for.” – Kevin Caron, CFA
