The beliefs behind our beginning
With the long-term goal of beating the market, Sam Stewart formed Wasatch Advisors in 1975 based on four key beliefs:
Earnings growth ultimately drives stock prices
Beware of valuation. The price can get squeezed when earnings are growing but the price/earnings multiple is contracting. Our rough rule of thumb is that a growth stock is fairly valued when its price/earnings ratio is roughly in line with its expected growth rate.
Small companies grow faster than large ones
Simply the law of large numbers. Growth of 15% requires vastly more new business for a large company than it does for a small one.
Greater market inefficiencies exist among smaller companies
Smaller companies are less interesting to Wall Street sell-side analysts because less investment capital can be put to work in a small company. With more small companies than large, and less analyst interest, you naturally end up with less efficient valuations among smaller companies.
Thorough and collaborative analysis leads to better investments
A disciplined approach to finding market inefficiencies requires deep exploration and an ability to tap into insights beyond your own perspectives.
These principles formed the backbone when Wasatch first began in 1975, and today, remain the critical components of our investment philosophy.