WHAT WE DO.

1)   We own good businesses for the long term.

2)   We own more of the good businesses that are priced below their intrinsic value and less of those that are priced at a premium.

3)   We react wisely to changes in the share prices of the businesses we watch.

HOW DO WE FIND GOOD BUSINESSES?

Our search is anchored by an interdisciplinary outlook which allows us to identify and evaluate a large variety of business operations. We then focus on the quality if the business, the nature of the industry in which the business operates and the impressiveness of the management team, board of directors and corporate culture. We are looking for businesses that possess “superior economics” and thus expanding value. These are businesses that strive to find innovative ways to outsmart their competition and generate above average return for their shareholders. We then narrow our search to a small selection of the most impressive which means those that will generate the most long-term value and are priced at the highest discount relative to their intrinsic value.

HOW DO WE VIEW INTRINSIC VALUE AND PRICE?

Although there are many businesses that we believe qualify as good, many are priced as such. Instead, we favor businesses that are good but that are priced as if they were average. Thus, we spend a lot of time arriving at and maintain a view of the intrinsic value of the businesses we watch. In our analysis we are not trying to determine at what price a business’s shares should trade but rather the fundamental value of the business which comes from all of its future profits and dividends. As long term investors the performance of the business is the focus rather than where its share price may be in the future. This means getting to know the business extremely well. The process of establishing a view of intrinsic value is laborious yet it is necessary in order to inform buy or sell actions triggered by share price fluctuation.

HOW DO WE REACT TO CHANGES IN THE SHARE PRICES OF THE BUSINESSES WE WATCH?

In a perfect world we could allocate all of our capital to the best businesses we have identified yet we typically do not allocate equally as each company is not trading at the same discount to its intrinsic value. Alternatively, we attempt to allocate funds based on the extent to which the business is trading at a discount. This method favors concentration and thus increases returns while decreasing risk. Given our understanding of intrinsic value and price we consider fluctuations in share price to present compelling buy or sell opportunities. With an increase in share price brings the possibility of owning less of a good business at a higher price and with a decrease in share price, owning more of a good business at a lower price. Thus, share price fluctuation is conceptualized as a windfall above and beyond the essence of our approach which is to own quality businesses for the long term. Nevertheless, we believe that consistent with Benjamin Graham’s observation that stock prices are the resultants of a welter of human reactions, price fluctuations will continue to present compelling opportunities.