Our Investing Philosophy
Our competitive advantage in management of equity securities results from the disciplined application of our equity selection philosophy which is based on adopting a business owner mentality while adhering to a "Margin of Safety" principle. This simple concept has become the cornerstone of our investment philosophy and this methodology is applied consistently regardless of short-term market events.
While success in equity investing may be defined by our ability to generate long-term net worth, success in fixed income investing may be measured by how well we preserve each client's net worth. We believe our competitive advantage in the management of fixed income portfolios is our diligent execution process, which enables us to capture excess yield without accepting excess risk.
We look to purchase good, undervalued businesses and wait for them to be revalued to their intrinsic values. Intrinsic values are based on the discounted value of the sum of its future cash flows. We don't decide to buy, sell, or hold stocks based on what others think the market or the economy is going to do, but based on how the intrinsic value of the business compares to the market price of the stock. We select (or hold) our marketable equity securities in much the same way we would evaluate a business for acquisition or retention in its entirety.
We believe that possessing a long-term view is absolutely necessary to being able to invest successfully (out-performing a benchmark over multi-year periods). Our structure gives us the ability to focus down the road, so our decisions can be based on long-term business values rather than whether next quarter's earnings will beat expectations or whether the next tick of the stock price is up or down. Having a client base that allows this is therefore a great advantage towards accomplishing our objective.
While we strive to maximize return, we believe that the primary and overriding investment criterion should be the safety of principal with a focus on minimizing permanent loss of capital. This mindset directs us to purchasing stocks at a significant discount to our estimate of underlying intrinsic value. This enables us to generate substantial gains when our analysis proves correct, while minimizing downside risk if a particular investment thesis is flawed. Adhering to these principles often results in an investment policy that runs counter to the general market psychology, and facilitates reducing the process of purchasing and selling securities to a discipline rather than an art. This approach is focused on maximizing long-term net worth and not necessarily on generating short-term performance.