When one choice becomes a million, people move the markets.

Our Approach

At PENCE, we watch what people do. Our ability to recognize potential and unique sources of alpha in how and what people consume, reject or cast off is our difference.

A PROPRIETARY APPROACH

Our investment perspective leverages expertise in behavioral finance and our founder’s experience as a leading military intelligence officer specializing in psychological warfare. This rare combination of skills helps us to anticipate and capitalize on the human factors that shift the balance of competition across sectors and industries.

Our proprietary investment approach, Choke Point Investing™, validates the influence of human factors on security selection.

INVESTMENT PHILOSOPHY

We believe that investments grounded in real-world opportunities make more sense. Tapping into the consumer’s decision-making process at an early stage enables us to use that information to guide us on what they are going to buy and from whom they will buy it.

Our Process

The observations and methodical research of the investment team validate the long-term influence of behavioral economic themes, lock in on the implicit human factors that will sustain growth, and identify companies positioned to dominate the market.

How it works

Find Big Knowable Themes

These are long-lasting and consistent themes that drive human behavior and consumption or significant external forces that drive demand. By identifying these themes, we seek to identify what influences consumer activity.

Identify Choke Points

Borrowed from military parlance, a choke point is a barrier that competitors must get through, over or around to achieve their objective. A limited number of companies can dominate the supply chain between human demand and satisfaction by negotiating choke points more successfully than their competitors.

Target Best of Class

We focus on “Quality of Price” or companies with provable business models, strong fundamentals and robust growth and that stand to benefit from changes in consumer behavior going forward.

Leverage Pricing Power

We determine the effect of demand on the supply chain, forecast its long-term growth potential, and invest in companies that manage the choke point with the competitive advantage of pricing power.

Capture Excess Earnings

Pricing power translates into excess earnings which in turn can result in faster growth. These companies tend to demonstrate better execution in delivering on the theme and maximizing consumer satisfaction in order to stay relevant within the theme.

Maslow’s Hierarchy of Needs—Predictable Behavior

Academic Support

In 1943, psychologist Abraham Maslow conducted research on how the human brain works, discovering that we’re hard-wired to do things in a very predictable pattern and outlining a specific hierarchy in which people fulfill their needs for:

Physiological Factors
Safety and Security
Love and Belonging
Self-esteem
Self-actualization

In their need for these elements people do not vary. This is how we basically behave as human beings—income drives our needs and spending follows. We use Maslow’s Hierarchy of Needs to inform predictive ideas about what people will do before they do it.

Research Methodology

Our fundamental and field research supports PENCE’s investment ideas by validating true shifts in human behavior versus short-lived fads—a process which leads us to “big knowable,” investable themes. Looking further, we determine the effect of demand on the supply chain and forecast its long-term growth potential. We utilize proprietary and third-party research to validate our investment ideas and support the risk guidelines of each portfolio.

Portfolio Construction

Once a strategy is defined, the investment mix is determined. PENCE is highly selective—choosing only the stocks of companies that align with our investment thesis. Each security within a portfolio must meet our investment horizon, be validated by a big knowable theme and have strong fundamentals.

Risk Management

The investment committee conducts a formal review of risk across all strategies and portfolios on a daily, weekly and quarterly basis. They discuss market reports, headlines and the watch list, and conduct validity testing across thematic investment and risk exposure at the individual security level.

How to invest

Pence Capital Management develops investment strategies for distributors and model portfolios for advisors. To invest in Pence Capital Management Strategies, please contact your broker or advisor.

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