Our Investment Strategy

Our investment strategy is simple: we will attempt to provide you with returns greater than those of the overall stock markets, net of our fees and trading costs, over a reasonable period of time (at least three years). Some of our positions may be long-term holdings (1-5 years); some may be short-term arbitrage or "workout" investments (less than one year). Regardless of the expected duration of our holdings, we do not concern ourselves with short-term performance which, in our opinion, is less than three years.

We look for investment opportunities that we understand well and that we believe offer both a large margin of safety1 and above-market returns over time. When we find such investments, we invest heavily into our "best" ideas. When fully invested, client portfolios typically hold eight to twelve securities.

We typically sell positions when we believe that they are fairly valued, which usually happens because (i) their prices have increased or (ii) their intrinsic values2 have decreased.

Clients have online access to their investment accounts, and we send a quarterly letter to each client explaining our rationale for buying, selling, or holding particular securities as well as our thoughts on various investment topics.

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1Margin of Safety

We seek to invest in securities that we believe are trading at a substantial discount — preferably, at least 50% — to their intrinsic value; however, purchasing a security at such a considerable "margin of safety" does not preclude its price from falling further, nor does it prevent losses, especially over short investment timeframes (ie, less than three years).

2Intrinsic Value

We define intrinsic value as:

  • the value of a business as an ongoing concern, based on our estimation of future cash flows and owner earnings, or
  • the net value of a company's assets in liquidation, regardless of whether we believe it will actually be liquidated, or
  • the amount of cash that can be taken out of an investment opportunity over a specific timeframe (eg, a company is going private at $32.00 in roughly three weeks, and the stock is trading at $29.50)