Focusing on Growth

The goal of Girton Capital Management, Inc. (GCM) is to build wealth for our clients through skillful stock and bond selection. GCM believes that focused, in-depth investment research is the cornerstone of long-term capital growth.

Girton Capital Management, Inc. is an independent registered investment advisor dedicated to providing personal service for our clients. The company was founded in 1998 by John J. Girton, CFA (Chartered Financial Analyst).

GCM also publishes the Girton Capital Growth Letter, which appears quarterly. The guiding maxim of the Growth Letter is "discovering and tracking great growth franchises."

GCM's president and portfolio manager, John J. Girton, CFA, has over 25 years of experience in investment research. Prior to founding GCM, he was Director of Research and Senior Vice President of Van Kasper & Company, a leading regional investment brokerage based in San Francisco.

John was a Wall Street Journal All Star Analyst in stock picking skill for computer software stocks, in 1994 and 1995 placing third each year out of 45 and 63 analysts, respectively.* He has written many investment research reports on diverse industry niches such as alternative energy, organic and natural foods, health care, community banks, water companies, digital cinema, computer software, networking and the internet.

Karen Kleven joined Girton Capital Management in 2007 as an investment advisor representative, and is based in Quincy, a small town in the northeastern Sierra Nevada mountains of California.

Karen has been exploring the social, environmental, and financial impacts of investing since 1999, when she left the non-profit world and moved to the SF Bay Area to gain an inside view of the business sector and the financial markets. As a financial consultant with Smith Barney and Protected Investors of America she specialized in socially responsible investing and community investing. As a marketing manager with Kranenburg Capital Management she was involved in the clean technology venture capital world.

The Power of the Idea

Investing is really about ideas. Management teams conceive of and implement new business ideas, known in today's vernacular as "franchises," that will grow over time. By buying ownership in a public company (equity), or lending money to it (bonds), investors can participate in the company's success over time.

A real estate investor's mantra is "location, location, location." A stock investor's might be "management, management, management." We like to see situations where management owns a substantial enough portion of the stock to be highly interested in its growth.

We think we can offer the highest value to our clients by discovering and tracking ideas which can offer powerful new growth. We are constantly searching for franchise value in major new trends, such as Global Productivity, Sustainability and Conservation, Organic & Natural Foods, The Water Shortage, Global Warming and Pollution Control, New Media and the Internet. We are particularly looking for the leading companies that have the potential to return a multiple on investment over time - and we believe it takes only one or two in a portfolio to vastly enhance performance.

In considering higher growth franchises or investments, we try to pick an entry point that meets our value criteria, to represent "growth at a reasonable price" (GARP). We consider the company's price-to-book and price-to-sales ratios as well as its cash generation capability and balance sheet strength.

One of our key indicators compares the one-year forward P/E ratio to the company's projected EPS growth rate based roughly on the following table:

Year-Forward P/E
Projected Growth Rate
15
15
17
20
20
25
24
30
30
40
35
50
40
60
50
75

Notice how as the growth rate goes up, the P/E follows more slowly. So while we will generally avoid paying over a 40 forward P/E multiple, we might if we really like the company and we feel strongly about its management and predictability of earnings growth. Companies that exceed these ratios substantially, on the other hand, are candidates for sale.

Market Analysis

We don't try to predict the direction of the overall market, although we believe that over time the market has an upward bias. We simply like to buy companies that we think are cheap relative to others in the marketplace. Therefore, we concentrate on investigating individual companies which we believe have strong growth prospects, and buying them at the best price.

In our view, the market is overvalued when we find it difficult to find a stock that is inexpensive to buy. However, we have found that this situation rarely lasts very long, as either the market corrects, or a new area of growth springs forth.

Portfolio Management

We believe in portfolio diversification, including the use of different industries and a good selection of different companies in portfolios. We structure portfolios to meet each client's needs, whether it is capital growth, total return, or income with preservation of capital. For asset allocation, we consider the risk and return parameters of all of the client's assets to determine an appropriate asset mix between cash, bonds, and stock.

We also follow the major factors that Arbitrage Pricing Theory (APT) suggests affect the markets, such as changes in interest rates, inflation, gross domestic product, and the price of oil, among others. We then consider what kind of effects these macro factors might have on specific industries and companies.

Socially Responsible Investing

Regarding socially responsible investing (SRI), we favor progressive companies with good employee relations, positive environmental records, and low government defense contract business, and we look askance at polluters and tobacco companies, among others. We believe that socially responsible investing is good long-term business. We welcome the challenge of tailoring clients' portfolios to achieve their social aims in investing.

The Client Relationship

We hope that we appeal to the more intellectual and informed client. We look for a symbiotic relationship with the client, and are open to investment ideas from the client in the areas that they are experienced in. For example, we enjoy discussing new product ideas with a software engineer, new surgical techniques with a doctor, and new business ideas with an entrepreneur. This information is vital to understanding the reality of the business world, and the products that work in it.

We are always available to explain our investment strategy and are straightforward and easy to talk to. Our core ideal is to provide service with integrity and good humor, and thereby to increase wealth while enjoying the process.

*Past performance is not an indicator of future returns.

Note: GCM is not a tax advisor or financial planner, does not deal in insurance or commodities and does not receive a share of brokerage commissions billed the client by the custodian. For more information, Form ADV filed with the State of California is available from us upon request, and must be delivered to the client before an account is opened.