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.