Here are ten important principles (from Warren Buffett) that we have incorporated into our investment philosophy.
- Rule No.1: Never lose money.
- Rule No.2: Never forget rule No.1.
- Ensure that you have an adequate margin of safety.
- It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.
- Wide diversification is only required when investors do not understand what they are doing.
- A public-opinion poll is no substitute for thought. In the short run, the stock market is a voting machine. In the long run, it is a weighing machine.
- Stay within your circle of competence.
- Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.
- We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
- We are not looking for a needle in a haystack. We are looking for haystacks.
For more explanation on some of these principles, click here.
Investment Research Process
We pride ourselves in having one of the most thorough research processes in the industry. We perform:
- Comprehensive company financial statement analysis: We scrutinize each company’s annual report, proxy statement, quarterly statements and calls, and other financial documents as they are published.
- Competitive and market analysis: We test the competitive advantage of each company by comparing it against its competitors, observing and interviewing its customers, and asking feedback from the company’s employees or suppliers.
- In-depth financial valuation: We do not blindly accept the average estimates that investment analysts provide. We make adjustments to both inputs and outputs based on each company’s accounting methodology, management and track record.
Investment / Execution Strategy
Our primary focus will be to invest in individual stocks; however we will consider individual bonds, mutual funds, real estate investment trusts and commodities when appropriate.
- We typically invest in 5-20 companies (stocks) at any given time.
- We create starter positions and invest in great companies as long as the stock price is not overvalued.
- We intentionally keep some cash ready in order to aggressively invest and take advantage of opportunities when the stock price reaches a sizable margin of safety.
- We believe that stocks are not simply pieces of paper that are traded, or an electronic price that changes in value. Stocks represent an opportunity to become a part owner in a business.
- Most stock investors focus on short term market movements. Our long-term perspective will allow us to capitalize on short-term overreactions to fear and greed.
- We typically do not invest in bond funds, because it is subject to higher interest rate risk compared to holding individual bonds to maturity.
- We typically invest in fixed income using a bond ladder approach. Bond maturities will be based on your individual needs.
- We focus on safety of principal when investing in bonds. We do not try and reach out for higher yields that may increase the risk of incurring permanent losses of capital.