July 2023


Ruminations for investors seeking to enhance their wealth using the principles of VALUE INVESTING

To Our Business Partners

We are oftentimes asked about our thoughts on the market or economy – the “big picture.”  We honestly do not know.  Instead, we take a page from famed investor Peter Lynch, former manager of the Fidelity Magellan Fund, who once said, “I don’t believe in predicting markets.  I believe in buying great companies – especially companies that are undervalued, and/or underappreciated.”

Indeed.  While we are always cognizant of where the most popular stock indices are trading (very expensive, by the way!), our job as bottom-up stock pickers is to identify companies that not only are being priced substantially below their estimated worth but are also able to withstand economic downturns and thus emerge stronger on the other side, taking advantage of a weakened set of competitors.              

With this as a preamble, we now highlight one portfolio investment to illustrate how we implement our VALUE-oriented investment philosophy and execute our patient and disciplined research process.   


Evercore (EVR) is one of the most respected and trusted boutique investment banks in the world.  While not a household name, the company has all the hallmarks of a good business:

  • Growing & Highly Profitable.  Over the last ten years, Evercore has increased sales at a compound annual rate of approximately 15%, essentially all through organic means, i.e., not acquisition-driven.  Return on equity, which is a key measure of profitability, has averaged 30%.  We expect the company’s advisory business – mergers & acquisitions (M&A) and restructuring services – to continue to gain share due to its solid reputation in the marketplace.
  • Financially Strong.  Evercore’s solid balance sheet enables it to successfully navigate rough patches in the economy.   The company’s high profit margins and asset-light business model results in significant free cash flow generation.
  • Easy to Understand.  Evercore has a straightforward business model.  The company earns fees for advising on M&A transactions, helping companies restructure their operations, rendering strategic business advice worldwide, selling investment research, and providing wealth management services.
  • Owner-Operated.  Company officers and directors (“insiders”) beneficially own nearly 9% of Evercore, so their interests are aligned with those of public shareholders.  In addition, the company reduced its share count by more than 5% in 2022 as it took advantage of the stock trading at a large discount to estimated value to buy back shares.

M&A activity was exceptionally strong in 2021 and 2022, so a decrease in the size and number of transactions is impacting profitability over the near-term as activity normalizes.  However, this is already priced into the company’s stock.  Evercore is selling at approximately 55% of what we estimate the company to be worth, thus giving the investor a large MARGIN OF SAFETY.

Furthermore, the long-term fundamental outlook for the business is attractive.  Evercore’s strong culture and exceptionally talented group of professionals provide a breadth of capabilities to advise clients on their most important strategic, financial, and capital priorities.  The company should be able to continue to outperform its peers and generate attractive financial results for shareholders.


Speaking of “owner-operated…” According to the investment research firm Morningstar, in approximately two-thirds of mutual funds surveyed, the portfolio managers have NONE of their own money invested in the funds they manage.  Furthermore, in only a little more than 15% of mutual funds, their managers have more than $1 million personally invested.

This is quite eye-opening.  Is it not essential that the people who have been entrusted to steward clients’ capital align their fiscal interests directly with those of their customers?  We are happy to say that this is not an issue with us, as your Warnke/Nichols principals and their families account for greater than 15% of assets under management.


We are not going to belabor the point.  The greater investment community likes to use cash as a market-timing tool which, in practice, is a loser’s game.

To us bottom-up stock pickers, portfolio cash is purely and simply a function of how many, or how few, good investment ideas exist.  When stocks are rising and expensive, we sell; when stocks are falling and cheap, we buy.  Too much cash in a rising market hurts investment returns.  It does not bother us.  That way of thinking puts us squarely in the highly respected Buffett/Munger camp.  (See below.)

It takes character to sit with all that cash and to do nothing.  I didn’t get to where I am by going after mediocre opportunities.

— Charlie Munger, Berkshire Hathaway


On June 26, 1993, Merit Investment Group began its investment management operations with the idea that we could separate ourselves from the large investment advisor bureaucracies and The Herd by employing a patient, disciplined, time-tested investment approach.

Renamed Warnke/Nichols Ltd. in May 2001, we have grown to a nice size by fulfilling our mission:

“To provide clients with satisfactory long-term investment results consistent with preservation of capital, through the consistent application of a VALUE-oriented investment approach.”

We recently saw it noted that, of 1,100 mutual funds with assets below $100 million to start with, nearly 600, or 53%, did not last 10 years.  While it is not quite the same as our oversight of private accounts, we are proud of having beaten the survival odds by sticking to our investment philosophy and taking good care of our clients, who we consider our business partners.

We thank you, our clients, centers-of-influence, and business associates, for your ongoing trust and confidence.

Andy Ramer, CFA  •  Bill Warnke, CFA  •  Steve Nichols, CFA

For more information, including complete performance history, fee schedule, and SEC Brochure, contact us at value@warnkenichols.com


440 Wells Street #203, Delafield, WI 53018