Our Investment Strategy

We believe that consistently superior long term investment returns are best achieved by holding a portfolio of companies which increase their true business value independent of stock market and economic forces.

Therefore, our investment strategy emphasizes equity investments in companies which have consistently demonstrated above average growth and returns. For an additional margin of safety, we try to identify and exploit the differences which often arise between stock market prices and a company’s intrinsic value.

We do not base our security selection on short term assumptions for economic variables such as interest rates, inflation, etc. Although these factors are important, they are also unpredictable. However, we monitor economic and financial market conditions in order to avoid excessive portfolio exposure to a significant and abrupt change in long term trends.

Our decision making process is classic “bottom-up” company-by-company stock selection. We rely on our own fundamental research to identify companies which are engaged in businesses with attractive market economics. We prefer businesses which are understandable and relatively predictable. We prefer companies which possess franchise characteristics, exercise strategic competitive advantages in their businesses, earn high and sustainable returns on capital, and are guided by proven managers.

Many companies of interest to us are rarely undiscovered and often are valued at levels more expensive than the stock market averages. Nevertheless, history teaches that money-making opportunities in quality companies will arise because the majority of market participants behave with a short term horizon. In the short term, stock prices are heavily influenced by prevailing fads, themes and the daily flow of news. However, successful companies conduct their business in the context of longer term plans and opportunities.

We are not afraid to assume a contrary position. Indeed, as long as our research confirms that a company’s longer term opportunities are intact, and its business strategy is sound, then we invest with more confidence when we are apart from the herd. Certainly, we do not buy stocks solely because they are out of favor at the moment. Yet the crowd is often wrong and our experience has confirmed that differences between price and value are always corrected eventually; sometimes quickly and sometimes over a few years.

In summary, our practice is to rely on outstanding businesses and managers to create wealth for our clients rather than to chase rapidly shifting stock market perceptions. Our judgment is complemented by the patience and discipline gained over many years of experience.