Our Philosophy

Many investors fail in their efforts to achieve their long-term financial goals because they are unable to withstand the short term instability in their portfolios. They become emotionally involved in their investments and make the hasty decision to sell them when the markets have fallen, only to reinvest again after markets have risen. We believe that by mitigating the devastating effects of market corrections, clients are better able to maintain their investment plans and reach their goals.

Studies have shown that having a diversified portfolio of quality investments is one of the many keys to successful investing. We believe that this includes a focus on individual stocks as opposed to mutual funds or exchange traded funds (ETF's). Successful diversification also includes fixed income and other appropriate investments to help reduce the short and long term volatility of the portfolio.

We believe that you do not have to have a portfolio which has 100% of your assets in stocks to achieve above-market returns. However, we also believe that it takes a minimum of 3 to 5 years to achieve the true benefits of a properly diversified portfolio. Our philosophy is based on a belief that you do not have to take 100% market risk to achieve market or above-market returns.

We are willing to sacrifice some of the market's upside in the short term in order to protect the downside risk and provide a smoother overall pattern of returns.

• The portfolio as a whole is more important than an individual security. The appropriate allocation of capital among asset classes (equities, bonds, cash, etc.) will have far more influence on long-term portfolio results than the selection of individual securities.
• Investing for the long term becomes critical to investment success because it allows the long-term characteristics of the asset classes to surface. Many industries are cyclical in nature. Therefore, it is important for successful investing to allow for patience to invest through the highs and lows of industry cycles while being in a position to adjust a portfolio along the way.

Equities offer the potential for higher long-term investment returns than cash or fixed income investments. Equities are also more volatile in their performance. An investor seeking higher rates of return must increase the proportion of equities in their portfolio, while at the same time accepting greater variation of results (including occasional declines in value). Anchor Financial Services, Inc. attempts to control overall portfolio risk through asset allocation, fixed income management, security selection and a continuous "active" management approach to the portfolio.

Our approach to picking individual equities stresses security selection through using a qualitative, fundamental analysis. In analyzing the stock of a company, we like to see a high and sustainable return on equity and well-defined growth prospects. We also look for improving profitability; strong balance sheets; and in some instances, a unique niche for the company. In all these criteria, our primary focus remains value. According to our research, "value" stocks have outperformed "growth" stocks on a consistent long term basis. Therefore, our portfolios are weighted towards "value", or stocks which would be considered undervalued relative to their peers and the overall stock market. Although we prefer "value" stocks, it does not preclude us from owing "growth" stocks in the portfolio. Additionally, we favor stocks that have a strong history of returning capital back to shareholders in the form of a dividend. We believe that dividends play a major role in the overall return of an equity portfolio.

Valuation is probably the most important parameter to consider when committing capital to a business. When we purchase a stock, it is because we believe the future value of the cash the business will generate will be more than the current value of the dollars we are paying. The wider the gap between the current price and the intrinsic value, the higher the return will be. If we overpay for future earnings, we will either lose money or suffer through mediocre returns until the point where the valuation becomes attractive relative to the intrinsic value.

Fixed income securities are used to dampen volatility in the overall portfolio. Fixed income investments are chosen based on the financial strength of the issuers, the maturity structure and valuation considerations. In many instances we prefer using fixed income mutual funds due to some benefits in such investments, particularly as it pertains to international fixed income investments.

As long term investors, our approach demands that we do not get excited when the stock markets fluctuate. Instead, we look at the value of the positions in our portfolio on a regular basis to determine if we should sell a portion or all of a security, or buy more of the security because we believe it is undervalued and it fits the portfolios asset allocation strategy.