Advisers
The Boulder Total Return Fund, Inc.("BTF") and the Boulder Growth & Income Fund, Inc. ("BIF") (collectively, the "Funds") have engaged two registered investment advisors, Boulder Investment Advisers, LLC ("BIA"), and Stewart Investment Advisers, ("SIA") who are headquartered in Boulder, Colorado and Barbados respectively. BIA and SIA employ Stewart R. Horejsi as their portfolio manager. When Mr. Horejsi resides in the United States, he is employed by BIA and when he resides in Barbados, he is employed by SIA. Mr. Horejsi is the Fund's primary portfolio manager and provides advisory services to the Fund regarding asset allocation and investments in common stocks. Mr. Horejsi's family interests own approximately 44% of the shares of BTF and 12.5% of the shares of BIF.
Investment Style for the Boulder Funds
We believe that everyone is better served if our stockholders, as well as others interested in the Fund, have a high degree of understanding of our investment philosophy. In this context, we strive on an ongoing basis to lay out as clearly as possible our investment approach, our investment goals and what we are trying to accomplish. In this regard, Mr. Horejsi has provided below a narrative of his thoughts and insights about the direction of the Fund:
Our "prime directive" is and will always be to avoid losing what we have. Our secondary goal is to achieve the best possible return on investments without permanently jeopardizing that with which we started. Our approach in reaching this goal is to use a "tortoise" style of investing. That is, we will not seek to "get rich quick". I used to think it was impossible to get rich quick, although I knew very well you could get poor quick. In the late 1990s, we saw a lot of people get rich quick by investing in Internet and other technology stocks. However, much of that wealth (and often more) was subsequently lost in the crash of 2000. So, rather than risk my and your hard-earned money and try to get rich quick by investing in what may be the then-current hot market, I am going to stick with the investing style that has served me and my family well for the last 3 decades.
I believe if you buy good companies with long records of success and what appear to be good probabilities, they will continue their success, and, if you buy these companies at reasonable prices, there is a very high likelihood that you will be satisfied over the long term – although even this is not certain. But if you are diversified, this approach seems to offer the best chance for success when balanced against the least chance for loss. I don't worry about short-term losses in the price of our stock or the underlying stocks we own, because we are usually not going to sell when the price is down. As long as our underlying companies are performing well, we will keep them for a long time. If we do sell them, it is likely to be when their price is high, not when it is low.
Our focus will be to make investments with the highest possible degree of certainty about their future. Our experience is that almost all surprises in the investment world are to the down side. This leads us to buying businesses with long track records of success. Some of our companies will pay no or low dividends - others will pay high dividends. We don't care which, so long as our projected long-term results are attractive. It is our objective for the Fund to become part-owners in businesses that produce a high return on assets and can effectively reinvest those profits in more high return assets. If they cannot effectively invest, we want them to return their profits to the owners either in the form of dividends or stock repurchases.
Note that while we use the same analytical approach for financial companies as we do for commercial/operating companies, the financial ratios we use to evaluate the companies are different because of the inherent differences in their capital structures. Nonetheless, for all companies, we look for the following performance factors and every prospect should pass each test before we move to the next:
- We look for a consistently high return on assets (above 13%) and favor those having an improving return on assets.
- We look for growth. We favor companies whose per share earnings have grown at a rate of 15% per year over the last 10 years. Since we like a long history of earnings, this virtually eliminates our investing in startup companies.
- We favor companies who, within their industry, have the highest profit margin as a percent-of-sales. The company having the highest profit will be the last survivor in a price war.
- We insist that the stock options granted to employees be sensible. Generally this means that exercise of the options will usually result in negligible growth in shares outstanding.
- We look for low total debt and prefer it to be less than 50% of total footings. Debt always has to be paid back, usually at an inconvenient time.
- We try to predict, in a general way, the long-term effect that the Internet will have on the business.
- We like to buy at a "reasonable" price. "Reasonable" is determined by comparing the prospect's P/E against the S&P 500 and against the prospect's historical P/E, its peers and its own growth rate. We want the growth rate to exceed the P/E, and get really excited when the growth rate plus the dividend rate is two-times the P/E.
- We want to minimize commissions, spreads, and taxes. Thus we intend to hold these companies as long as the first 7 above criteria continue to be satisfied and we won't sell them unless the price becomes outlandishly high. We must periodically satisfy ourselves that these conditions continue.
Our real expectation of profit with respect to any investment is to match that of the underlying company during our holding period. If we successfully buy a stock when it is below its intrinsic value, we may get a one-time double-dip when the multiple catches up. However, I view this as a one-time bonus, and not the purpose of the purchase. Buying at a discount from intrinsic value gives us a second important advantage by reducing our downside risk.
We hope this makes what we are trying to do clear because it's not likely to change for a long time. If our position is clear, we hope only people with the same objective will buy our stock. We view ourselves as running a marathon, not a sprint, and we expect the tortoise to finish the race for sure. We want to be there at the end.
Stewart R. Horejsi
Fund Administrative Services, LLC, the administrator for the Boulder Funds, also serves as the Administrator to another closed-end fund, First Opportunity Fund, Inc. To go directly to the website for this fund, CLICK HERE: www.firstopportunityfund.com
