Our views on the equity markets combined with our specific skill set provide a framework for our investment methodology.
Nature of Insights
We believe the market often misprices stocks due to neglect, emotion, misinterpretation, and a short-term perspective. The best way to capitalize on these inefficiencies is through bottom-up company research. Stock selection is limited to those businesses we are able to confidently value and purchase at a significant discount. Our analyses of companies allow us to establish an informational edge with an emphasis on identifying how our insights about a company differ from the market’s as well as our degree of conviction in these insights.
We think of our universe of companies not as a stock market but as a cross section of opportunities. We are owners of partial interests in businesses, and our investment time horizon reflects this mindset. Our holding period is conceptually varied as we are always looking for the valuation gap to narrow or close, and in many cases, companies are purchased based on a specific investment premise that we expect to unfold over time. We constantly assess the risk/reward relationships (more a function of discount to intrinsic value and the volatility of a company’s operating results than the volatility of its market price) associated with the stocks we own.
We believe good ideas should be positioned to have a meaningful impact on client portfolio performance; our portfolios own the 25 to 35 best ideas we can find. Individual position sizes range from 2% to 10%, and weightings are directly correlated to our level of conviction. Our portfolio structure is not influenced by a given benchmark. We emphasize effective diversification, thinking in terms of investment opportunities instead of active exposures.