Applying Our Philosophy
We seek out companies that possess three characteristics:
a lasting franchise; honest, shareholder-oriented management with excellent capital allocation skills; and a bargain valuation
Companies fitting this description are typically fairly valued in the marketplace. While financial markets are usually efficient, they will from time to time present opportunities to buy good businesses at bargain prices.
We do our own research, performing in-depth fundamental analysis of any company that attracts our attention. We avoid the concept of relative valuation and do not believe that a stock is cheap simply because it is selling at lower multiples than its peers. Furthermore, if we are earning an attractive internal return on our investment, then we will continue to hold that investment until a more attractive opportunity arises.
We avoid being influenced by short-term volatility, except to take advantage of an opportunity to sell a stock if it becomes overvalued or buy more if it becomes undervalued. The speed at which a company’s business success will be recognized by the market is difficult to estimate. Therefore, we do not attempt to time the market and often invest contrary to conventional wisdom. If we are right in our analysis, a company’s value will be realized over the long term.
Our portfolios are relatively concentrated, reflecting a high level of conviction based on our understanding of the businesses we own and the margin of safety incorporated in our analysis.