Core Tenets

  • We find value by pursuing securities that are out of favor, overlooked, or misunderstood, where an analytical, informational or behavioral edge is more likely, as compared to popular securities, which are well understood by most investors.
  • We analyze a company as a private business. The price we pay for a common stock must be at a substantial discount to what we believe the issuer is worth as a private company. We ask ourselves if we would want to own the entire company at the price being offered.
  • In the absence of compelling investment opportunities, we hold cash.
  • We invest predominantly in companies with strong balance sheets, an approach that we believe dramatically reduces our risk of permanent loss of capital. The companies in which we invest possess valuable assets, tend to have substantial cash positions, and are typically unencumbered by significant liabilities.
  • Our research process is relentless and includes regular communication with management teams, customers, and competitors.
  • Because our investments are based on specific knowledge, we have less of a need to over-diversify. We typically invest about 5% of our portfolio in each of our highest-conviction ideas, whereas most mutual funds often invest only 2% in high-conviction ideas. We believe that our best ideas deserve much more of our capital.
  • Management teams with whom we partner are measured by integrity, drive, competence as operators and capital allocators, and incentives to do right by shareholders.
  • We invest in corporate bonds, most often supported by hard assets, that offer attractive yields and are protected by rights to claim assets ahead of common and preferred stock.
  • We do not share the common view that volatility is risk. While volatility can be distressing, it creates exceptional investment opportunities for those poised to exploit it. Further, it offers us the chance to reduce the average cost on our existing positions. We simply believe thorough research and a great price ultimately trump the discomfort of volatility.
  • We measure ourselves on a rolling three-year basis because the gap between market value and intrinsic value often does not close in one quarter or even one year.
  • Our price targets are periodically reassessed to account for any events that may impact intrinsic value. When our price targets are met, we sell.
  • We believe that the temperament to remain steadfast in our analytical conviction, especially when others are consumed by fear or blinded by enthusiasm, is necessary to obtaining superior long-term returns. Further, flexibility must be maintained in order to avoid the pitfalls of overconfidence.

2 Wisconsin Circle, Suite 700 | Chevy Chase, MD 20815 | Phone: (301) 656-8500 | Map and Directions LinkedIn