We ensure that every investment has a margin of safety, which is the difference between a stock's intrinsic value and the price we pay. The key to a reliable margin of safety is a stable or growing intrinsic value.
We consider our primary source of risk to be a permanent loss of capital - not Beta. We manage this risk by means of rigorous bottom-up fundamental and qualitative business analysis, in order to intelligently and objectively estimate intrinsic value of potential investments.
In estimating intrinsic value, we emphasize three factors:
We sell our investments when there is no longer a margin of safety, whether through investment appreciation or the impairment of fundamentals.
Our portfolios are concentrated, with 10 to 25 names but no more than 15% of the portfolio in any one investment as measured at cost. Portfolios are managed without regional, sector, or market capitalization constraints. We pay no attention to benchmarks. Cash is a residual of our investment opportunity set.
We are 'tempered' when faced with uncertainty, pessimism and fear over a downturn. We do not shy away from market volatility, but rather embrace it, as these situations provide investment opportunities.
In evaluating potential investments, we use a minimum three-year investment horizon. Patience is therefore required to realize the full value of our investments. Collecting dividends while we wait is helpful.
Investing is the most intelligent when it is most business-like.
Patience, patience, and more patience.
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.