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Investment Philosophy

My investment philosophy is informed by the value investing tradition, and is based on the following core principles:

  1. Primary objective is preservation of principal/investment capital
  2. Risk is the permanent loss/impairment of capital, not price volatility or sensitivity to market fluctuations
  3. Secondary objective is to compound capital at a satisfactory rate over the long-term
  4. A satisfactory rate is to earn an adequate return while preserving purchasing power
  5. Always invest with a margin of safety to a business’ intrinsic value
  6. Intrinsic value, the value justified by the facts and fundamentals of a business, is the key reference point for investment – all opportunities should be evaluated against this appraisal
  7. Valuation is the cornerstone of the investment process – return is a function of price paid, and the price an investor is willing to pay should always be a function of intrinsic value
  8. Valuation is performed by bottom-up, fundamental analysis of the business, to determine its intrinsic value
  9. Investing involves buying a share in a business, not purchasing a certificate to be traded
  10. Value a company as if you are acquiring the entire company/business, rather than on a per-share basis
  11. Top down, macro-economic analysis is not a productive use of time  – it involves consideration of too many unpredictable variables
  12. Attempting to predict future events, market prices and economic variables as part of the investment process is absurd – the future is inherently unknowable
  13. Diversification can erode returns and result in a lack of sufficient knowledge or understanding of investments made. A concentrated investment strategy is preferable, in order to focus only on the best investment ideas and opportunities offered by the market’s mis-pricing of businesses. The risk of investment error and permanent capital impairment can be mitigated by the margin of safety principle in a concentrated portfolio
  14. Always perform your own research and analysis rather than relying on others’ ideas and decisions – independent thinking is essential to the investment process
  15. Wait patiently for the right opportunities, and invest based on valuation when these opportunities arise – investment analysis and its consequent decisions should never be rushed or motivated by emotion
  16. Seek out investments that have the following characteristics:
  • Undervalued by the market relative to intrinsic value
  • Out-of-favour, mispriced businesses with attractive fundamentals
  • Stable, predictable businesses
  • High and consistent returns on invested capital
  • Durable competitive advantages over competitors
  • Favourable long-term prospects
  • Competent management, who uphold their duty to shareholders and operate with integrity
  • Asymmetric investment situations (risk vs. return profile)

As a student of value investing, I seek to continuously learn and improve my knowledge and practice of investing, while holding the above principles as core to my investment process. Therefore the above provides a basic framework for investment, rather than a complete or exhaustive set of principles.

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