Value Matters. Always.

We believe that a disciplined and time-tested investment process is the smartest way to sustain and build your wealth. We are dedicated to producing the best risk-adjusted returns possible in a unique portfolio that reflects your specific situation. Every portfolio is custom built from the bottom up to fit each client.

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A Value Culture

Value investing is a philosophy, as much as it is a technique. Its most elemental principle being summarized in the classic Buffett quote, “Price is what you pay, value is what you get.” In practice, it requires independent thinking and research to consistently allocate capital to investments that offer value greater than the current price reflects.

Finding value is crucial, paying the right price is essential, but it’s also important to avoid the behavioral biases that plague most investors:

  • Investors have a preference for so-called “lottery” investments- low probability outcomes with extravagant potential payouts
  • Many people favor speculative investments in exciting industries
  • Institutional investors fear underperformance, which leads to a herd mentality

Simplicity ≠ Simplistic

  • It requires an understanding of complexity to appreciate the beauty of simplicity
  • You should understand what you own and why you own it

Value Investing is in our DNA

  • The goal is to buy good assets cheap, not just buy good assets
  • High quality is easy to detect, while cheapness is hard to identify
  • We seek to isolate genuine value from the merely inexpensive

We must see a light at the end of the tunnel

  • We have a long-term investment horizon, but it’s typically not forever
  • Before we even make our initial investment we must see a clear path to recovery
  • During this recovery, we carefully monitor management behavior to ensure they’re making decisions in the best interest of shareholders

Long-Term Investors are rewarded

  • Having a longer time horizon is a competitive advantage over other investors’ short-term focus
  • We seek to make multi-year investments in companies we think will thrive over the long-term
  • Our style often requires discipline, patience and the right temperament

Contrarian Mindset

  • Finding uncommon values requires creativity, independence and a unique viewpoint
  • Such values exist among stocks shunned by investors who follow popular trends or market fads

Diversification without Dilution

  • When it comes to diversification, current conventional wisdom says that broader is always better
  • Owning too many positions ensures that the returns from the portfolios best ideas, become diluted by its worst
  • We believe a focused portfolio of 20-30 deeply researched stocks provides the risk-reducing benefits of diversification without diluting returns

What Determines Value?

How we value a company is based on the principles of cash economic value, rather than actuarial accounting data.

  • Our analysis merges income and capital data, converting it into economically-relevant information
  • We have a time-tested framework for determining a company’s intrinsic value
  • Opportunities arise when price deviates meaningfully from intrinsic value, usually when sentiment or perception swing too far in one direction

We demand profitable growth

  • The only valuable growth is profitable growth: unlike many investors, we care about how a company grows
  • We scrutinize how much cash flow can be generated for every dollar of capital invested in the business
  • High-return businesses should reinvest capital; we avoid companies that pour capital into low-return assets

The Intersection of Quality, Value and Price

Of this investing trinity, only price is objective and readily knowable. It’s better to buy a company of fair-quality at a low price than to buy a high-quality company at a fair price

  • We measure risk as the permanent loss of capital, so paying the right price is paramount
  • The riskiest investments are those which the investor pays the greatest premium above intrinsic value
  • This means that overpaying for a company with high-quality assets can be more risky than buying lower-quality assets at cheaper prices

Quality

A poor management team can ruin even the best business

  • Experience and good judgement are necessary to evaluate the quality of a company’s managment
  • Stated earnings say nothing about the quality and the cost of generating those earnings
  • Earnings power and financial leverage are fluid and must be continuously monitored

Value

We care about value. Always.

  • Despite the many ways to derive it, a company can only have one intrinsic value
  • Our time-tested and proprietary analytical process is both thorough and efficient

Price

We care about the price we pay. Always.

  • The riskiest investments are those in which the investor pays the greatest premium over intrinsic value
  • Overpaying for high-quality assets can carry greater risk than buying lower-quality assets at discounted prices
  • Oftentimes, waiting for the right price takes a great deal of patience and discipline
Managing Risk

We measure risk, not as volatility but rather as the permanent loss of capital

  • We avoid companies with excessive financial leverage
  • We limit our exposure to individual sectors and risk factors, even if it means foregoing opportunity

Margin of Safety

We won’t always be right, so we seek to limit the price of being wrong

  • Margin of safety is the difference between the price we pay and the downside risk if we’re wrong

Risk-Adjusted Return Framework

We always want our best ideas (i.e. largest margin of safety) to be our biggest positions

  • We use a numerical ranking system to prioritize where we allocate capital
  • This is a Darwinian process that ensures that every investment in the portfolio deserves to be there

Making an Ally of Volatility

The most significant investor errors come from behavioral lapses, rather than from analytical or information failures

  • The investment industry spends countless hours and dollars trying to minimize portfolio volatility
  • Being prepared to use volatility to seize opportunities is a competitive advantage to long-term investors
Fixed Income

We believe fixed income plays an important role in a diversified portfolio, providing a ballast to your stock portfolio as well as current income. The proportion of your portfolio dedicated to fixed income is customized to your unique risk/return objectives.

  • We do not attempt to forecast interest rate direction. We execute a laddered bond strategy that spreads our interest rate risk across the yield curve.
  • Each year’s maturing bond can be reinvested or used to supplement current income; reinvesting “keeps the ladder intact”.
  • We evaluate each individual bond (beyond credit ratings) and know clearly what we are buying; minimum rating = investment grade.
  • We emphasize protection of principal and don’t “chase yield”.
  • We monitor bond quality and will sell if it declines.
  • We choose taxable or tax-exempt bonds based on your highest after-tax yield.