Beechwood Capital Management, Inc.

Investment strategy

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Beechwood Capital Management, Inc. uses a "value" approach to investing in the stock market. The value approach focuses on the assets of an investment and their value to an outside buyer. It does not focus on the economy or the expectation that earnings will grow at any particular rate. This method has two primary components: closed-end funds selling at a discount from net asset value, and individual stocks.

Closed-end funds are similar to mutual funds in that an individual can own shares of an entire portfolio that is professionally managed. Those shares can be bought and sold without the difficulty of dealing with each individual company in the fund. The primary difference between a mutual fund and a closed-end fund is how they are bought and sold. A mutual fund is bought and sold at net asset value from the company that manages the fund. On the other hand, the shares of a closed-end fund are bought and sold on a stock exchange like any other stock. This means that the price paid is not necessarily the net asset value. In fact, it is often possible to purchase closed-end funds at a discount from net asset value of greater than 15%. Why pay full price in the stock market when a discounted price is readily available through a closed-end fund? Of course, these discounts fluctuate, which means the discount can get substantially larger or smaller. Some funds even sell at a premium to net asset value. The clear strategy is to purchase closed-end funds selling at a large discount and wait for the discount to shrink. This does not always happen, but in the meantime the expectation is that the assets of the closed-end fund will have average performance. If the discount does shrink, the average performance of the fund plus the bonus of a shrinking discount can result in excellent long-term results.

When choosing individual stocks, Beechwood Capital Management, Inc. focuses on several factors that historically have shown to be good indications of value1. Among those are low price/earnings ratio, low price to cash flow, stock buybacks, heavy inside ownership, high breakup value and other factors, which vary from situation to situation. Also, we look for a potential catalyst that might bring the value out. Of course, no investment strategy works all the time; however, we believe that using a value investment style, over the long run, is an excellent way to approach the stock market.

Getting good value in your investments is only part of the equation. Diversification is also a critical component of sound investment policy. Beechwood Capital Management, Inc. combines value with diversification to help you reach your investment goals.

1. See What Has Worked in Investing: Studies of Investment Approaches and Characteristics Associated with Exceptional Returns, Tweedy Browne Company L.P. 1992