Business Focused Investing

We invest in public securities with much the same approach a buyer would use if purchasing a partial interest in a private company. We do not look for short-term trading opportunities or mediocre companies that we can flip in a quarter or a year – we seek to own high quality, modestly valued businesses over a period of many years so that we can profit from the growth in their intrinsic value as they expand and grow their earnings over time.

Long-Term Orientation

We take a long-term view in our business analysis and investing. We approach each investment with the expectation that we will own it for five years or longer. We believe that this provides an advantage in a short-term oriented market – we often find buying opportunities when short-term, yet resolvable business problems create selling pressure from investors lacking the patience or perspective to see through temporary uncertainty.

Concentration & Conviction-Weightings

We believe that it is rare to find a high quality business trading at a discount price, so when we find such an opportunity we like to make it a meaningful part of the portfolio. Typically we hold 20 to 30 stocks with 60% to 80% of assets in the top ten positions. At this portfolio size, we can concentrate our investments in our best ideas and still have holdings spread across a variety of industries.

Independent Research

A stock price generally reflects the investment community’s consensus thinking about a business and its future prospects. To produce superior investment results, we need to recognize when consensus thinking about a stock is wrong, and capitalize on that opportunity. Our concentrated, low turnover investment approach allows us to put more research time into each idea, enabling thorough, independent fundamental research that we believe is important to uncovering such marketplace mispricings.

Risk Management

As long-term investors, we are focused on the risk of “permanent capital loss” – the potential that an investment is worth less five years from now than it is worth today – rather than short-term price volatility or benchmark tracking error. We view fundamental business risk – new competition, technological change, financial leverage, poor capital allocation, etc. – and excessive valuation as the key sources of this risk, so we focus our efforts on trying to manage these exposures.

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