Investment Process

Our Investing Philosophy 
Our competitive advantage in management of equity securities results from the disciplined application of our equity selection philosophy which is based on adopting a business owner mentality while adhering to a "Margin of Safety" principle. This simple concept has become the cornerstone of our investment philosophy and this methodology is applied consistently regardless of short-term market events.

Discpline
We look to purchase good, undervalued business and wait for them to be revalued to their intrinsic values. Intrinsic values are based on the discounted value of the sum of its future cash flows. We don't decide to buy, sell, or hold stocks based on what others think the market or the economy is going to do, but based on how the intrinsic value of the business compares to the market price of the stock. We select (or hold) our marketable equity securities in much the same way we would evaluate a business for acquisition or retention in its entirety.

Patience
We believe that possessing a long-term view is absolutely necessary to being able to invest successfully (out-performing a benchmark over multi-year periods). Our structure gives us the ability to focus down the road, so our decisions can be based on long-term business values rather than whether next quarter's earnings will beat expectations or whether the next tick of the stock price is up or down. Having a client base that allows this is therefore a great advantage towards accomplishing our objective.

Perspective
While we strive to maximize return, we believe that the primary and overriding investment criterion should be the safety of principal with a focus on minimizing permanent loss of capital. This mindset directs us to purchasing stocks at a significant discount to our estimate of underlying intrinsic value. This enables us to generate substantial gains when our analysis proves correct, while minimizing downside risk if a particular investment thesis is flawed. Adhering to these principles often results in an investment policy that runs counter to the general market psychology, and facilitates reducing the process of purchasing and selling securities to a discipline rather than an art. This approach is focused on maximizing long-term net worth and not necessarily on generating short-term performance.

Proven Management

• Great businesses are built by first-class management teams.
• Often these are individuals who think like owner-operators, who consider the strategic and operational implications of their decisions, who allocate capital on a day-to-day basis in a financially productive fashion, and who manage risk in a manner that maximizes shareholder value over full market cycles.
• We view management as partners and place great value on those individuals who by their actions exhibit an exceptional degree of intelligence, energy and integrity.

Margin of Safety

• The "margin of safety" principle is a cornerstone of our investment philosophy. While we strive to maximize return, we believe that the primary and overriding investment criterion should be safety of principal with a focus on minimizing permanent loss of capital.
• We focus our analysis on uncovering companies selling at a significant discount to our estimate of underlying intrinsic value.
• Equities purchased at substantial reductions from intrinsic worth help protect capital from loss while offering significant appreciation potential as the market recognizes the company's economic value.

Disciplined Action

• Our approach is focused on maximizing long-term net worth and not necessarily on generating short-term performance. Market movements are important to us only in a practical sense, as they alternately create low price levels at which we can buy and high price levels at which we can sell.
• We never forget that we are managing your money. This reinforces our commitment to our philosophy and enables us to avoid undisciplined investment decisions.
• We apply our investment discipline consistently, regardless of short-term market events. We seek to allocate investment capital on the basis of justifiable premises, valid logic and hard evidence - not popularity or emotion.

Equity Research

Our equity research applies a thorough process to screen, track, evaluate, and manage your portfolio.

Sustainable Competitive Advantages

• Capital tends to flow to businesses offering the highest returns. Therefore, even the strongest, most well-managed businesses must constantly build and maintain formidable competitive advantages over competitors in order to preserve their superior economics.
• To maximize our chances of compounding our clients’ capital effectively over full market cycles, we have a strong preference for businesses with wide (and growing) competitive moats. The moats may include globally recognized brands, a dominant or growing share in a growing market, a superior profit model, a lean cost structure, unique distribution advantages, unique intellectual property, and so forth.

Quantitative Assessment

• High returns on capital.
• High correlation between earnings and cash flow.
• Low financial risk.
• Valuations based on discounted cash flow models.