The investing style of James Dondero

James Dondero is someone of a well-known figure here in Dallas. As the CEO and president of Highland Capital Management he has built over 20 billion dollars for his clients, all in a strategy that is atypical from the average investment firm. With this phone sometimes doubling and even tripling the return seen from the S&P it’s safe to say that any investor or fund manager can learn a lot from his style.

Highland Capital shares their philosophy openly. With a focus on high yield credit and corporate bonds, they’re skilled managers or able to detect bargains in the corporate debt Marketplace. This line of Investments has been with them from the start in 1993 and continues to be the lifeblood of the organization.

The strategy is implemented using three separate methodologies together. They start with the bottom up approach in analyzing a company. Before they even considered larger industry conditions. For James Dondero and Highland Capital there is opportunity in any market, it is simply a matter of determining whether or not a business has the capability of capitalizing on that opportunity. With a bottom down approach they can determine the fitness of a company first and then look at the industry opportunity second.

Once bottom-up analysis is completed they look from the top down. Using proprietary models of sector analysis and risk allocation highland Capital Management is able to determine just how much a viable company earn. Just because a company can make money does not necessarily mean it’s the best investment which is why this level of analysis is important.

Finally they practice “Alpha-by-avoidance”. This is somewhat of a trade secret, but highland fully believes that truly great managers are measured based on how well they identify and avoid potential losers. This includes continued analysis of existing holdings in order to sell them off in time.

It is these three factors that has made James Dondero its success in the investment market. These are the principles that carry them forward and can help anyone see success in investing and even more so when applied by a skilled professional.

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