Polley, President and CIO of Stewart Capital Advisors LLC, Serves as Finance Seminar Speaker

Posted on 5/8/2018 3:21:33 PM

On April 23, 2018, Daniel Lawson’s Finance in Seminar class had the opportunity to gain interesting knowledge from one of IUP’s own adjunct faculty members, Malcolm Polley, a chartered financial analyst, or CFA, with more than 30 years of financial experience. His career began in 1987.

Polley FIN 422 Seminar Speaker

Along with being an adjunct professor, Polley is the president and chief investment officer for Stewart Capital Advisors LLC. Stewart Capital is responsible for asset management, research, performance evaluation, and asset allocation strategies. Polley’s interest in finance started at a young age when his mother introduced him to investing. Investing worked well with his personality because investing allows you to track performance on any given day in an objective, numeric fashion, assuming one understands the numbers.

One subject that Polley discussed is common stock. Common stock is what one most likely thinks of when they imagine the ruckus trades being made on any given weekday on Wall Street, but what really is all this commotion about? To most, common stock is viewed as an investment in an intangible item that ideally will increase in value over the duration it is held, but that is an oversimplification of common stock.

Common stock is the fractural ownership interest in a company. In other words, it is partial ownership of a company. This knowledge is important because without it many people invest blindly into companies without understanding what the company does or how it makes money. One would never invest in their eccentric aunt’s bead company without understanding how this whole thing works and is going to make money, so why should someone trust corporations any more? Are they infallible? Absolutely not. By understanding businesses, you can avoid your aunt’s bead company and potentially even avoid investing in a company that does not make sense on the stock exchange. Those are some important concepts to grasp if one has any hope of beating the market.

It is this art of investigating what one is actually buying that contributes to why Malcolm Polley almost never buys bank stock. In his words, banks, “do not earn their cost of capital.” For this same reason, Malcolm loves insurance companies because the cost of float below 100 is “phenomenal.”  Malcolm also does not buy utilities, as he believes they are too state regulated, nor does he buy hospitals because he feels that they do not have enough control over their costs or revenue streams because of the many regulations.

This concept is so important because, when trying to outperform the stock market, it is much easier to pick bad businesses, or stocks to avoid, than it is to pick out “sure thing” winners. By extrapolating that concept, it is far easier to make money if you do not lose it in the first place. This is called capital preservation. Although investors do suffer from performance envy when others outperform them, sins of omission are much better than making a bad pick instead of doing nothing.

The presentation then shifted to discussing The Limits of Theory, a journal entry in Epoch Investment Partners, Inc. It began with discussing some of the fathers of modern finance like Jay Gould, who was a famous Robber Baron and leverage buyout expert, J.P. Morgan, the father of much of corporate finance, and Joseph Kennedy, who helped regulate the stock market after taking advantage of many of the loop holes it provided for years.

Polley addressed how stocks are more than simply a collection of statistics. They (stocks) can actually be broken down into smaller pieces, like fast-growing factor-exposure funds. He talked about how price and value are not the same. Price is the number that one pays, while value is what one actually receives from the payment. Value or what you receive from a stock can shift depending on environmental, social, and governmental ques in the same way that price can shift. To avoid these rapid shifts in price and value, it is best to invest with good people because one cannot, “make a good deal with a bad guy.”

At Stewart Capital, Polley will own between 30-50 stocks at any given time. These are shares in companies that he believes in and feels have management values that are similar to his own. From these beliefs, Malcolm Polley’s job is to safely invest and find the inefficiencies that exist in the market that separate the current value from the current trading price. When this happens, ideally the market corrects and the value meets the price, creating a financial gain or loss depending on the investment.

After the presentation, these students had remarks:

“I thought the presentation was very informative on his opinion on market efficiency, and if there was nothing but ETFs then there would not be a market for IPOs anymore. Also his opinion on the different sectors was interesting due to him not being in those sectors. For example, him not being invested in REITs and utilities.”
—Brian Sloan, senior finance major

“Mr. Polley always provides an interesting perspective on the finance industry and market concepts. His handout and discussion on modern portfolio theory have furthered my growing interest in the theoretical sides of markets. It was also nice to hear his overall optimism regarding the job outlook in finance and related fields.”
—Seth Thomas, senior finance major

“It was very interesting to listen to Mr. Polley’s experience in investments. His stories in the investment and financial services industry were incredibly fascinating. As a finance student, you learn so much about investments but to hear Mr. Polley’s real world experience gave me a whole new perspective regarding the financial services industry and was truly a once in a lifetime educational opportunity.”
—Brady Huff, senior finance major

On behalf of Indiana University of Pennsylvania and Eberly College of Business and Information Technology, we thank Malcolm Polley for taking the time out of his busy schedule to give an interesting presentation of his take on what it is like to work in the financial sector.