INVESTMENT PRINCIPLES
Principle 1: Think and invest for the long-term. We cannot predict the performance of the market over three, twelve or even twenty-four months, however, over time a company’s share price should reflect the underlying value of the business.
Principle 2: Competitive advantage. Look for businesses with a strong, sustainable competitive advantage. This could include brands, high switching costs, scale, sustainable cost advantage, network effects or access to scarce resources.
Principle 3: Invest in businesses with sustainably high returns on capital. These companies should generate free cash flow that reinvested in the business at high expected rates of return or returned to shareholders. A dollar reinvested should result in at least a dollar of additional market value created.
Principle 4: Pay a fair price. Paying too high a price for even the best business can make a poor investment. Bargain prices don’t automatically make great investments either. Seek to pay a fair price for a great business.
Principle 5: Invest with honest, competent and capable management. Management should think like owners, be transparent and honest with investors, and always consider the return on shareholder capital.
Principle 6: Do your own homework. Do not rely on the research or opinions of others. We base decisions on first-hand research using primary sources (annual reports, company filings etc). Be confident to think for ourselves.
Principle 7: Do not be contrarian for the sake of it. Look for unique insight, but don’t go against the crowd without a strong, well-researched view. The market is usually right.
Principle 8: Do not over diversify. Where we have high levels of confidence and acceptable levels of risk, we will invest in significant size. We will not invest a small amount in something where we are lukewarm on the idea.
Principle 9: Risk is not synonymous with volatility. We identify risk as the failure to meet our long-term investment objectives and the possible permanent loss of capital by selling during large, but temporary, market declines. Share price declines represent an opportunity to acquire part interests in excellent businesses at more attractive prices.
Principle 10: Do not use borrowed money to invest. Leverage can enhance returns but can become addictive and may reduce flexibility during market panics or crises. Be mindful of where others are using leverage.