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

PENCE PROCESS

At PENCE, we use our understanding of human behavior, the markets and competitive strategy to put your money to work for you. We aim to capitalize on the supply chain of human demand—we see alpha in the human factor. For our investors it is the opportunity to own progress.

  • We study human behavior, ahead of the change.
  • We define transformative themes, ahead of the signals.
  • We target companies with a competitive edge, ahead of their peers.
  • We move aggressively to capture growth, ahead of the crowd.

 

Human behavior is at the core of what we do

Pence Capital Management, LLC is a registered investment advisory firm based in Newport Beach, California.

The firm’s investment approach adheres to its founding principles, which bring together the study of human behavior and economic analysis. Our investment team comprises professionals with diverse perspectives and credentials as economists, experts in behavioral finance, psychology specialists and former military leaders.

Founded by E. Dryden Pence III, a Harvard-educated economist with thirty years of experience in the financial industry, and a retired Army Colonel specializing in Intelligence, Special Operations and Psychological Warfare, the firm aims to capitalize on the supply chain of human demand to identify investment opportunities.

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.

PENCE 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

1.

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.

2.

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.

3.

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.

4.

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.

5.

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:

  1. Physiological Factors
  2. Safety and Security
  3. Love and Belonging
  4. Self-esteem
  5. 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

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

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

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.

Strategies

Our investment strategies seek to capitalize on thematic, long-term investment trends built on a close study of human behavior.

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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