Value investing is simple but not easy. It requires a child-like curiosity, independent thinking, and a disciplined process to prevent emotion from corroding the process.
It requires an understanding of human nature and the tendency of psychological factors to influence behavior. It requires patience and resilience to hold positions long enough to be right and the humility to recognize when you are wrong.
We have learned a lot but begin each day looking forward to learning more. We know that it is impossible to predict what lies ahead, so we focus on understanding what is knowable, rather than forecasting the future.
Successful investing requires a heavy emphasis on avoiding mistakes in addition to getting things right because protecting capital through challenging times is inconsistent with maximizing returns in good times.
We understand that aggressive investing can generate exciting returns when the future unfolds as expected, but we prefer the more reliable gains offered through defensive investing which increase the odds of coming through intact when the future doesn’t oblige.
We recognize that this may limit our profits in good times, but place greater emphasis on more dependable returns achieved through lower risk.
We have the flexibility and the patience to commit as little or as much capital as we determine based on our independent appraisal of valuations and expected returns, opportunity costs, and risks.
The amount of cash we hold is inversely proportional to both the number and the attractiveness of securities trading at a discount to what we believe they are worth.
We remain fully invested only when opportunities are sufficient in number and in attractiveness.
In the absence of such an environment, we spend our time building an inventory of ideas that meet our investment requirements. It is not particularly exciting to hold cash, but it is the price that must be paid for superior performance. The benefits of our value-oriented approach are difficult to distinguish in a bull market, but prove their merit during difficult times. Great investors must be able to buy low and willing to sell high.
We focus our resources on our best ideas and as a result, our short-term results may be more volatile than more diversified funds and broad indices.
We build high conviction portfolios based on rigorous research and commons sense. Our portfolios look different than the market and as a result, our returns will too. Our investors appreciate this distinction which makes it easier to manage short-term fluctuations in price.
We share what we’ve learned with our partners openly as communication strengthens relationships.
We want each of our partners to understand our philosophy, our process, our decisions, and results. The perspective we’ve gained is the result of intellectual curiosity and the pursuit of excellence. The decisions we make on your behalf are based on the cumulative knowledge we’ve gained every day.
We will make mistakes, and from time-to-time, our process is sure to produce suboptimal results. But over the long term, our approach should yield long-term capital growth while minimizing risk of loss.
We can’t guarantee success every quarter or even every year, but we can promise to treat your money as if it were our own and to remain fully transparent in the decision we make. We recognize and fully accept that our own process may not be the best way to stay at the top of the pack in any given year, but the evidence suggests that it produces a portfolio better able to avoid permanent capital loss and increases the probability of success over the long term.