INVESTMENT PRINCIPLES

Principle 1: focus on what is knowable. Don’t try to make predictions about the market, the economy, the business cycle, long-term thematic trends or things that are unknowable.


Principle 2: we are owners of businesses, not stock investors. We cannot predict the performance of the market or share prices 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 3: look for businesses with enduring competitive advantage. These advantages can include brands, high switching costs, scale, sustainable cost advantages, network effects or access to scarce resource.

Principle 4: invest in businesses with sustainably high returns on capital and plentiful opportunities to reinvest at high rates of return. A dollar reinvested should result in at least a dollar of additional market value created.


Principle 5: 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 6: seek to partner with honest, intelligent and capable management. Management should think like owners, be transparent and honest with investors, and always consider the return on shareholder capital.

 

Principle 7: we do our own homework. Do not rely on the research or opinions of others. Base decisions on first-hand information where possible, apply our own judgement and carefully evaluate risks.

Principle 8: look for unique insights but do not be contrarian for the sake of it. Don't go against the crowd without a strongly founded, well-researched view. The market is usually right.


Principle 9: do not over diversify. Where we have high levels of confidence in the long-term outlook for a business we will invest in significant size. We will not invest a small amount in something where we are lukewarm on the idea.

 

Principle 10: risk is not synonymous with volatility. Risk is the failure to meet our long-term investment objectives and the possible permanent loss of capital by selling during large, but temporary, market declines. Lower prices are an opportunity to acquire stakes in good businesses.

 

Principle 11: do not use borrowed money to invest. Leverage can enhance returns but its use can become addictive and sudden demands on capital can reduce flexibility during times of crisis and opportunity.