Superior Returns with Below Average Risk

Invest with a Margin of Safety

 Any investment needs to have a sufficient margin of safety to offset our investment risk.  The greater the perceived riskiness of the investment, the greater the margin of safety must be, and the greater the return.  Our margin of safety will be determined through multiple measures, all based on logic built into our in-house models.  If the models do not give us a margin of safety meeting our in-house minimum, it will not be considered for inclusion into the portfolio at that time.

Cash Generation is Key

A company must have a business model that creates cash.  If a company won’t produce cash in the long run, it is no more than a greater fool approach to investment.  We will always prefer current cash generation abilities as opposed to future cash generation abilities, as forecasted cash flows are no more than best estimates and can easily be wrong.  Whether a company is a going concern will be of upmost importance when ultimately deciding to deploy capital.

The Catalyst is Your Friend

We understand that value investing is not in style, but it always produces returns.  If an investment in a strong company runs contrary to the current perception, a catalyst must either be present, or be easily predictable given enough research.  An investment can be made in a good company, but if the aura of pessimism never abates, the investment can be a loser far longer than one realizes, with the opportunity cost of holding that position far outweighing the potential returns.  In short, if no catalyst can be seen, and the expected return does not outweigh the risk, the company will not meet our requirements for portfolio inclusion.

Risk is not Knowing What you are Doing

We do not follow the traditionally accepted measures of risk.  In our minds, risk does no equate to volatility.  In a well-balanced blend of investments, all with extraordinary margins of safety and cash generation capabilities, our portfolio risk is minimized.  Risk will be further minimized within the portfolio through a deep understanding of the businesses in which these companies operate, with a thorough understanding of what moves these markets.