Value

The cornerstone of our investment approach rests on our understanding and determination of value. Through rigorous “bottom-up” research and analysis, we estimate what a business is worth by deriving its fundamental intrinsic value. We purchase a business when the price of its security trades at a meaningful discount to what we think the business is worth. We sell a business when the valuation spread is no longer attractive. 

Prices of securities deviate from intrinsic value because markets are occasionally inefficient. Inefficiencies stem from manic and depressive psychological forces that affect the decisions of market participants. The resulting differential between price and value creates exploitable investment opportunities with favorable risk characteristics. We aggressively search for and seek to identify these opportunities in all corners of the market. We choose to hold cash unless attractive investment opportunities are available.

We make no attempt to predict the future because the future is uncertain. We therefore take a cautious approach rooted in statistical and behavioral theory. We make selective and concentrated investments in mispriced securities during periods of dislocation and only when there is a sufficient margin of safety given the probability of expected outcomes. We close positions when the margin of safety is no longer sufficient.

We are patient and disciplined long-term investors. We are better prepared to tolerate short-term price volatility because we are grounded in our belief that securities are mean-reverting over time. We intend to hold our positions over a period of years as prices converge to our estimates of intrinsic value. A byproduct of this approach is enhanced tax efficiency.

We are independent thinkers and only operate within our circle of competence. Our proprietary research dictates our decision-making process. We are unconventional and contrarian by nature, purchasing businesses that are typically out of favor. Our perception tends to vary from the crowd.

We define risk as the permanent loss of capital. The foundation of our risk-control framework is our assessment of the probabilities of occurrence of various possible outcomes. Our aim is to minimize the statistical likelihood of negative probabilistic outcomes and to lessen the impact of asymmetric left tail events. To this end, we focus on avoiding the losers as the winners will take care of themselves. Our investment and portfolio management decisions are made within the context of this risk-control framework. We do not utilize leverage.