Greed and ignorance rule the financial markets.
                                 That’s why most people get not what they expect
                                 but what they so richly deserve!
                                                                              —RAND M. WALKER

We firmly believe that knowledge, confidence, discipline, and patience are the fundamental building blocks of a prudent strategy for the accumulation, preservation, and enjoyment of wealth.

To better understand what you may expect from a particular investment instrument and how investment decisions may impact portfolio risk, you should become familiar with the concept of asset classes, their nature, their potential, and their limitations.

At Galápagos Advisors we recognize five distinct asset classes: cash, fixed income, equities, real estate, and commodities (while we acknowledge the existence of a special asset class –we call it Exotica– to accommodate such unusual items as fine art, antiques, vintage cars, collectibles, etc. we take it into account only when such items are acquired for their speculative potential and not for personal enjoyment).

Not all asset classes may be suitable for you. For example, cash would make sense if your goal is stability and ready liquidity but not if you desire to grow your assets. Fixed income instruments offer you a predictable income stream and/or preservation of capital, but generally not growth. Equities might be suitable investments if you wish to grow your capital but not necessarily if you seek to preserve it Speculating in real estate or commodities might be a way to accumulate capital IF you are willing to tolerate the high degree of volatility associated with such investments.

Once an Investment Framework is in place, the next step is to select the individual securities that will make up the portfolio, for which we follow a rigorous six-step process:

1. We start by carefully observing the global economy, analyzing trends in population, income, consumption, economic development, and geo-political relationships. This process leads us to make certain macro-economic assumptions about the environment we may face over the next several years.

2. Next, we screen for industries and/or countries that stand to benefit from the economic environment envisioned by our macro-economic assumptions.

3. The resulting industries and/or countries are then subjected to an in-depth review in an effort to ferret out potential investment targets.

4. Each potential investment target is subjected to a thorough and critical analysis of its financial structure, market presence, competitive position, cash flow generation, prospects for profitability, etc. We aim to learn what they do, how they do it, and what their relative strengths and weaknesses are. Only then do we decide whether investing in a particular target may be warranted.

5. Once we choose to invest in a target, we establish the maximum price we are willing to pay for it, and clearly specify the conditions that would cause us to exit from the investment.

6. After an investment is made, we constantly monitor it to ascertain whether the original reasons for making the investment remain valid, or whether a change in conditions warrants a change in our investment posture.

Fixed Income: In addition to the six-step process described above, because when considering this class our overriding concern is protecting our clients’ capital, we also pay particular attention to the issuer; its financial strength; its ability to generate free cash flow, pay interest, and repay principal; the relative seniority of the issue being considered, and that issue’s coupon, maturity, duration, and call features.