Value InvestingOur strategies are rooted in a school of thought called Value Investing. The goal is to buy undervalued securities in the expectation that the market will eventually come to appreciate the merits and valuation that we saw all along.
We pride ourselves on our firm’s ability to discern disparities between a company’s stock price and the intrinsic value of the business. Bubbles, busts, manias and crashes are rooted in emotion and misinformation. Intrinsic values – what a company is inherently worth across business cycles – are calculated by fact and unemotional analysis.
Typical investors think about all of the reasons why their ideas will succeed. We continually challenge our ideas by asking ourselves, “What is the downside?” Through our constant stress-testing of our best ideas, we either gain confidence in our holdings, or come to accept that a loved holding should be let go.
FocusResearch suggests that as portfolio diversification increases, performance will tend to move toward the market average. In other words, highly diversified portfolios are engineered for mediocrity.
We want to invest only in companies that exhibit outstanding characteristics. Naturally there are only a handful of these companies in the world, and even fewer trading at attractive prices. Our typical strategy will hold 7-12 positions at any time. We stress quality over quantity and putting our money behind our best ideas.
Opportunistic StrategyWindows to buy high-quality companies open suddenly, unexpectedly and for short periods of time. A bad earnings report, a lawsuit, short-term headwinds may send stocks down quickly and fiercely. If the company is otherwise sound, we might look beyond the fear and buy aggressively as others sell. We run to investigate the smell of smoke, as others exit the building at any cost.
Related to this principle, is our view that we should always have a substantial cash position. Cash allows us to act quickly when shares of high-quality names are punished for what we believe to be a less-than-adequate reason.
Long-Term ResultsWe believe that our long-term perspective should give us an inherent advantage over market participants more focused on the next quarterly report.
This perspective allows us to cancel out short-term noise and to focus on the bigger-picture drivers of a company that will ultimately shape its future. In addition to a better research perspective, we believe that long-term holding periods could allow for lower transaction costs (trade commissions) and be more tax-efficient.