“We clear a high bar before making an investment, and we
resist the many pressures that other investors surely feel to lower that bar.
The prospective return must always be generous relative to the risk incurred.
For riskier investments, the upside potential must be many multiples of any
potential loss. We believe there is room for a few of these potential five and
ten baggers in a diversified, low-risk portfolio. A bargain price is necessary
but not sufficient for making an investment, because sometimes securities that
seem superficially inexpensive really aren’t. “Value traps” are cheap for a
reason--perhaps an inept and entrenched management, a poor history of capital
allocation, or assets whose value is in inexorable decline. A catalyst for the realization
of underlying value is something we seek, but we will also make investments
without a catalyst when the price is sufficiently compelling. It is easy to find
middling opportunities but rare to find exceptional ones. We conduct an
expansive search for opportunity across industries, asset classes, and
geographies, and when we find compelling bargains we drill deep to verify the validity
of our assumptions. Only then do we buy. As for what we own, we continually
assess and reassess to incorporate new fundamental information about an
investment in the context of market price fluctuations. When bargains are
lacking, we are comfortable holding cash. This approach has been rewarding--as
one would hope with a philosophy that is painstaking, extremely disciplined, and
highly opportunistic.”
