OUR INVESTMENT STRATEGY

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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:

• Valuation - discovery of mispriced situations
• Management Ownership - evidence of shareholder-friendly governance
• Business Quality - conservative estimates of earning durability and growth

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.