Our Investing Beliefs Guide How We Manage Money

We believe our investors should have a very clear view on our investing beliefs. In other words "what drives our investment strategy" for our actively managed accounts. These may seem common sense but we have found a lot of advisers/money managers who do not follow them.

Rule #1: Don’t lose money.
Rule #2: Never forget rule #1.
— Warren Buffett

There are three key inefficiencies that allow some investors to "beat the market". If we are going to beat the market, we have to focus diligently on these inefficiencies:

  1. Technical
  2. Informational
  3. Behavioral

The market does have inefficiencies But they are difficult to find

Most academics and market participants define the risk of something as its volatility. We believe volatility provides opportunities by providing the ability to buy something cheaper. However, having learned this the hard way, we size our positions as appropriate to ensure the potential volatility that should be an asset does not turn into a liability

We discuss this more here

Volatility does not equal risk; however it can still lead to losses

We focus on what we can control in terms of understanding and valuing a businesses and industries. That means we only buy businesses we believe we truly understand. While this sounds pretty obvious, most managers end up owning multiple securities of which they have no chance of truly understanding the economics. We discuss this here.

At the same time, while we don't place bets on macro events, we do work to understand:

  1. Where we are in the industry's cycle
  2. Any significant currency risks
  3. Any significant commodity risks 
  4. Other "macro style risks"

Therefore while it doesn't "drive" our investment process, understanding the macro and adjusting for a range of cash flow probabilities is critical. 

We discuss this more here.

We focus on valuation not forecasting macro events. 

We have no problem being patient and letting the market do what it does while we try to find business we understand at great prices. We see no need to be fully invested at all times if we cannot find securities that meet our criteria we will hold cash. We discuss this more here

Inaction is absolutely an action - Cash is not trash