Investment Philosophy

We practice value investing as espoused by Benjamin Graham and Warren Buffett. Our strategy is to invest in mispriced securities, taking advantage of the inefficiencies of the market to profit as value and price converge over time. We focus on understandable businesses that trade at prices offering large margins of safety.

A margin of safety is the difference between an asset’s intrinsic value and the price at which it can be bought. The greater the margin of safety, the higher the returns an investor is likely to receive. Using conservative or even pessimistic assumptions, we estimate intrinsic value by determining the cash flows that will likely be delivered to the owners of an asset. If the value of a company under the worst case scenario is more than its current market price, then we can invest knowing that we are unlikely to lose money even if we are wrong about the business. This margin of safety protects us: heads, we win; tails, we don’t lose much.

We run concentrated portfolios. We prefer to invest more money in our very best ideas than in our 50th or 100th best ideas. We therefore will typically have 5-15 positions at any one time. Rebalancing occurs as we find investment ideas that we believe are better than those in our current portfolio. We are also not afraid to hold cash: under certain conditions it can be one of our best ideas.