Philosophy & Process

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Concentrated Approach

Given our stringent criteria, we need to look broadly across capitalizations, industries and geographies to find good opportunities. While there are tens of thousands of listed corporations, only a few combine all our investment requirements at a given time, which leads us to run a more concentrated portfolio.

Concentration allows us, in turn, to spend a disproportionate amount of time getting to know the most attractive companies, helping to manage the risk of a mistake which might otherwise lead to capital loss. Lastly, we expect that focusing on our best ideas with the most attractive discounts will allow us to pursue strong performance over time.

Portfolio Construction

Portfolio construction is the product of our research and valuation process. We only add the companies that meet our qualitative investment criteria and which we believe are significantly undervalued. We then allocate individual portfolio weightings according to the relative discount to our estimate of intrinsic value. This approach allows our ideas with the greatest potential upside to have a more significant impact on performance.

We may sell a holding when its market price appreciates and approaches our estimate of fair value, when we find opportunities to reallocate capital to other investments with greater reward potential, or when the original investment thesis no longer holds.

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We do not think of risk as the historical volatility of a stock, either on an absolute basis or relative to a chosen benchmark.  We define risk more fundamentally, starting with exposure to a given business and considering the possibility of a permanent loss. By that we mean a reduction in our estimate of the intrinsic value in excess of the margin of safety or discount that we believed the stock provided when we made the original purchase.

Our entire approach is downside-focused and inherently defensive. We use stringent selection criteria that lead us to only invest in well-run, financially strong, high quality businesses. We follow a rigorous process whereby we conduct our own extensive fundamental research that serves as a basis for investment decisions. Lastly, we take a value-driven approach and only buy when we believe there is significant upside potential.

While we do not allow arbitrarily set criteria to interfere with investment decisions, we are mindful of the portfolio output of our bottom-up approach, not only in terms of individual names, but also in terms of industry, geography, and currency exposure. We also carefully monitor our combined share of ownership in any given company, and we continuously manage the overall liquidity profile of the funds.