#1: Return of capital is more important than return on capital. The greatest negative impact on portfolio returns is the failure of a large position to perform according to the original thesis which results in loss of capital. We attempt to mitigate this risk through 1) investment analysis, 2) portfolio construction and 3) hedging of risks with respect to individual positions and/or the overall portfolio as we see fit.
#2: We are in it for the long haul, seeking to achieve consistent, solid returns. Our business success is dependent on our investors’ success. Each portfolio is designed to address a niche that meets our investors’ specific needs over a spectrum of risk. We seek to make the right investments at the right times in context with each portfolio’s mandate, keeping in mind that highest perceived total return potential is not necessarily the smartest investment.
#3: Understanding the business model and associated risks is essential to intelligent investing. In most cases, our investment analysis begins with a fundamental understanding of an issuer’s business model and management objectives followed by an analysis of the capital structure. Depending on the nature of the investment, the analysis may continue with a more in-depth study of legal aspects, pending transactions and processes that may impact the issuer. A good investment in a bad business is not a recipe for enduring success.
#4: Being disciplined and pragmatic are indispensable in this ever changing world. We try to focus on what we know and what we do well. We do not pursue investment ideas or strategies that are outside of our core competency. Further, frankness and transparency with our investors reinforces our dedication to operating within the mandate of each strategy. Remaining disciplined, an astute investor must also be pragmatic – willing to take advantage of opportunities when the market provides them, standing aside when markets are frothy and other investors overextend to capture increasingly elusive return.
“Rule number one: Never lose money.
Rule number two: Never forget rule number one.”
