Philosophy
We think the key to investment success is avoiding significant losses
Our core philosophy revolves around maximizing the investor’s odds of success by avoiding painful losses. We are not “benchmark-centric” investors focused on relative returns. Instead, we employ an absolute return framework which provides the flexibility to go where value leads. We pride ourselves on independent (often contrarian) thinking, and we avoid reliance on outside research which is often fraught with bias. We believe our long-term results are driven by a disciplined adherence to our investment process.
Process
Valuation
We think that valuation is perhaps the most important factor in determining long-term investment success. While many investors rely on simplistic measures like price-to-earnings or price-to-book value ratios, our model is based on a thoughtful price-to-value framework which focuses on “through-cycle” ownership.
Value Trap Avoidance
Businesses that don’t grow or are overly indebted tend to be poor long-term investments. Our process focuses on evaluating the secular trends propelling or harming businesses. We also pay careful attention to balance sheet leverage. We seek to avoid “value traps” by prioritizing sustainable earnings growth along with financial strength.
Earnings Quality
Many investors take earnings at face value. In doing so, they may be over or under estimating “earnings power.” We perform an in-depth evaluation of accounting and management integrity by critically examining the financial statements and regulatory filings for information others may overlook.
Diversification
We tend to “under-bet” our beliefs, seeking a responsible level of diversification that allows good investments to have a meaningful contribution while limiting the impact of mistakes. Our portfolios are diversified across industry groups. The average number of positions in a portfolio ranges between 30 and 40, with initial position sizes of 2% to 4%.
Tax Efficiency
One of our hallmarks is the attention we pay to the tax implications of our investment decisions. Taxes can impact after-tax returns more than manager alphas or fees, and are an important element in investment strategy evaluation for taxable investors. We seek to minimize a client’s tax burden by using a full array of tax-management techniques, including low turnover, deferral of gain-recognition until long-term when possible, and pro-active tax-loss harvesting throughout the year.