1. WE INVEST FOR THE LONG TERM
A long-term time horizon is probably the single greatest competitive advantage that an investor can have and yet so few are able to exploit it.
WHY? – Most renumeration is short-term bonus oriented leading to short-term quick buck decisions. We are students of the legendary investors of Berkshire Hathaway
Charlie Munger – ‘show me the incentive and I will show you the outcome’
Warren Buffet – ‘Our stay-put behaviour reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient’
We search for businesses that earn superior returns and are able to sustain them over a long period of time. We must be patient if we wish to buy these business at a reasonable valuation.
2. WE FOCUS ON AVOIDING PERMANENT LOSS OF CAPITAL NOT REDUCING VOLATILITY
This fact makes it important to do careful company due diligence covering:
- Sustainability of the business model
- Strength of balance sheet
- Resilience of cash flow generation
- Valuation that has ample margin of safety
3. VALUE IS THE MOST IMPORTANT RISK CONTROL
We look to make good long term returns for our clients, however, capital protection is paramount. This requires controlling risk in an uncertain world where most things cannot be controlled, but..
We are very focussed on the one risk over which we have 100% control – the price we pay for an investment. Our core investment philosophy is consciously based on the premise that the riskiest thing is overpaying for an asset (regardless of its quality), and the best way to reduce risk is by paying a price that is low. A low price provides a margin of safety and that is what risk-controlled investing is all about.
To quote Benjamin Graham, the mentor of Warren Buffet: ‘The function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future.’