The objective of our single investment strategy is long-term capital appreciation while avoiding the permanent loss of capital.
Our investment strategy consists of the following key components:
- Long-Term Compounding. Our preference will always be to buy and patiently hold common stocks of quality companies with the expectation that the value of such stocks will appreciate over time. Our desired holding period is 3-5 years or longer, and therefore we do not engage in frequent trading. We believe taking a long-term view enables us to better ignore short-term “noise”, compound investment returns in the most tax-efficient manner and minimize transaction costs. We also may also invest in short positions and “special situations” such as distressed companies, mergers and spin-offs with a shorter time horizon in mind but such investments are limited to a smaller percentage of the total portfolio.
- Portfolio Concentration. We aim to hold 8-12 companies in a portfolio at any given time. We believe such a concentrated portfolio enables us to better understand the underlying businesses of the companies we invest in, think more deeply about the merits of each investment, and appreciate the importance of opportunity costs when comparing investments. In fact, we believe our approach of investing in only a few high-conviction, well-understood ideas carries less risk (which we define as the probability of permanent loss of capital) than the more common approach of investing in many low-conviction, poorly-understood ideas. While concentrated portfolios are likely to experience greater short-term volatility relative to more widely-diversified portfolios, our goal is to maximize long-term appreciation, and therefore we do not seek to minimize nor manage volatility.
- United States & Greater China. In terms of geographic coverage, our focus is on public companies with operations in the U.S. and Greater China with a strong bias towards those listed on U.S. stock exchanges. Relative to other regions in the world, we believe we are most familiar with the business, economic, political and cultural environments of the U.S. and Greater China, which in turn enables us to better understand companies operating in those regions.
Investors need discipline to avoid the many unattractive pitches that are thrown, patience to wait for the right pitch, and judgement to know when it is time to swing.
Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have—or don’t have—in their portfolio.
Stick with big, “easy” decisions and eschew activity.
Beliefs are hypotheses to be tested, not treasures to be guarded.
If 1,000 managers make a market prediction at the beginning of a year, it’s very likely that the calls of at least one will be correct for nine consecutive years. Of course, 1,000 monkeys would be just as likely to produce a seemingly all-wise prophet. But there would remain a difference: The lucky monkey would not find people standing in line to invest with him.
Mr. Market’s job is to provide you with prices; your job is to decide whether it is to your advantage to act on them. You do not have to trade with him just because he constantly begs you to.
All good investing is value investing by definition.
The function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future.
It is better to be approximately right than precisely wrong.
You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.
Everything that’s important in investing is counterintuitive and everything that’s obvious is wrong.
Obvious decisions require no more than a single reason.
Experience is what you got when you didn’t get what you wanted.
Time is the friend of the wonderful business, the enemy of the mediocre.
In science you need to understand the world. In business you need others to misunderstand it.
Ignorance more frequently begets confidence than does knowledge.
An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.