Investment Philosophy
The pursuit of superior investment results is a tough journey. Our investment philosophy is a map that helps us stay on track in the daily bustle of the markets.
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Respect for Capital
Capital is the surplus created over long periods. For families, this could represent a lifetime of effort. It is important to treat it with care and invest in ideas that we understand with the mindset of the owner of that capital.
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Long-Term Orientation
Underlying earnings growth will be the primary driver of investment performance. However, businesses do not grow in linear fashion; they make headway and face setbacks. Therefore, we must give the businesses that we like the time to work their way through real-world problems without losing our patience.
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Deep Research on Micro; Look out for Macro
Companies with high quality managements, in industries that enjoy superior economics, and those that have a long growth runway will generate significant value. The bulk of our effort will go towards understanding these businesses in as much detail as is needed to build a convincing case.
There is an inherent cyclicality to both economic activity and to valuations in the equity market. While we cannot predict them, it is important to understand whether mean reversion is a headwind or a tailwind for the opportunities we are evaluating.
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A Belief in Mr. Market
The market, which behaves like a crowd, will swing between greed and fear. This will drive valuation away from fundamentals for individual companies and even whole sectors. If one can take advantage of this, it will lead to better outcomes.
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Value Orientation
Even a great business can be a poor purchase at the wrong price. While we cannot eliminate valuation risk or predict when it will play out, we will try and minimize its impact on our positions.
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Volatility Is Not Risk
Volatility is largely noise driven by Mr. Market and his mood swings and liquidity (or lack of it) in the stock. Risk is the probability of loss of capital. In this view of the world, higher returns often go with lower risk.
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Concentrated Portfolio
Businesses with superior economics, run by honest and competent managers, and operating in sectors with a long growth runway are uncommon. Once we identify such a name, it also makes sense to have a meaningful allocation to the idea so that it moves the needle for the portfolio.
