WealthArch Investment Approach
Rule #1: “Don’t Lose Money”
WealthArch’s behavioral mindset is to love it when stocks go down, get angry when they are up, and to have the fortitude of buying when everyone else is panicking and being defensive when everyone else is overly excited. We are conservative when stocks are expensive and aggressive when stocks are cheap.
The firm’s number one rule is, “Don’t lose money.” WealthArch only invests in companies whose stock prices provide a margin of safety, or buffer, for unexpected negative events.
Our investment strategy is to be concentrated in 5-25 companies, usually in the mid-teens. This reduces the risk of permanent loss because we are able to know our investments very intimately. Additionally, we believe our 26th best idea is less attractive than our top 10 investments. (We have a blog post that goes into more detail here.)
We’re also not afraid to hold as much as 50% of our portfolio in cash if we don’t find enough attractive investments. This allows us to “keep our powder dry” and deploy large amounts of capital when the markets turn downward.
Our approach is a proven investment strategy that creates downside protection and leads to reduced portfolio swings caused by volatility during large market corrections.
We scrutinize each quarterly and annual report, listen to quarterly earnings calls, review the proxy statements, and keep track of ongoing company/industry events and disclosures. Most small, independent financial advisory companies don’t personally do the large amount of quantitative and qualitative analysis that we do.
Here are ten important principles (from Warren Buffett) that we have incorporated into our investment philosophy.
- Rule No.1: Don’t 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. More info here.
- 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.