Our Investment Beliefs

• Our in-depth, conservative business appraisals underpin all decisions.
• Long-term horizon provides us with "time horizon arbitrage" opportunities.
• Volatility offers us opportunity.
  
• Margin of safety determines entry and exit limits.
  
• "Cheap" is not enough – we want sustainable competitive advantages and value growth.
• Our corporate management partners greatly impact our outcome.
  
• Concentrated portfolios in our 18-22 best investments adequately diversify, reduce risk, and improve return.
• Build bottom-up, benchmark-agnostic portfolios to own the highest quality, most discounted businesses.

Security Selection Criteria

Security Sell Criteria

Long-term investment horizon, multi-year holding periods, low turnover. Sell when:

• Price approaches current appraisal
• Risk/Return profile can be improved substantially
• Business' earnings power is permanently impaired
• Management proves incapable of building value and replacing leadership is not feasible

Buying with Large Margin of Safety

A significant discount between a stock’s price and its intrinsic value (P/V) should provide a margin of safety that helps protect capital from significant loss while giving us the potential to generate substantial returns.

The chart below illustrates the concept. We buy a business at $20/share, which is 50% of its $40 appraised value. Because it is a superior business with skilled management, our appraisal increases at 12% per year through cash earnings growth and free cash flow reinvestment. If the stock price reaches value after five years, we will have earned 29% per year. As the table shows, a higher P/V paid for a stock means a lower return.

In this illustration, which does not reflect performance of any particular security, an investment purchased at $20 and sold at $70 in five years creates a 29% CAGR. This assumes that 12% comes from the business’ value growth, and 17% comes from the stock moving from half of value at the outset to full value in five years. Actual investment performance and returns are not guaranteed.

These charts do not reflect the performance of any particular security.

Stewardship Code

Download the UK Stewardship Code Position Paper.