Our approach to risk management focuses on controlling against permanent capital loss.
Our risk control efforts emphasize:
- Diligence and know-how in developing accurate insights about the companies we own.
- Avoiding companies we cannot effectively value or business models that we do not understand.
- Requiring a significant “margin of safety” between price and intrinsic value when we purchase businesses.
- Effectively diversifying exposure to stock-specific risks and macroeconomic factor variables and maintaining adequate industry and sector diversification.
- Partnering with competent management teams whose interests are aligned with those of their shareholders.
- Maintaining objectivity in evaluating winning and losing positions.
Also worth mentioning are the risk control methods which are common to our industry that we do not emphasize. We do not manage portfolios to a low tracking error target; we do not consider traditional beta or price volatility metrics as a proxy for risk; and we do not own low-conviction stocks solely for diversification purposes.