We do not speculate. We invest. Speculating lacks a certain thoroughness and understanding. It is buying or selling on emotion or on a whim or on a hot tip. It is often times trend following. We believe the phrase that encompasses speculating the best is market timing. It can be, however, very seductive to believe in market timing that with the right analysis one can predict the market top as well as the market bottom and quickly move in and out to create benchmark beating returns. But, think about it – Who is the most successful market timer you know compared with who is the most successful investor?
We believe that it is impossible to predict, in advance, the best performing asset class. The future, by definition, is unknowable. Thus, we believe that we are incapable of being successful as market timers. While momentum and market timing strategies may work in the short-term we do not believe they have long-term validity. Therefore, our portfolios will all be prudently diversified among asset classes at all times, with each investment being analyzed from the bottom up. It is the growth and strengthening of underlying fundamentals that matter over the long-term not the volatility of daily price movements. Each investment will have a margin of safety – one that can be demonstrated by figures, by persuasive reasoning, and by reference to a body of actual experience.
We believe that the market, on a whole, is generally efficient and that prices reflect all available information. However, as long as humans and their emotions have a role in the market there will be over and under reactions causing pockets of inefficiencies where a well-prepared and savvy investor may take advantage. The ability to take advantage of these inefficiencies is to have performed due diligence and solid analysis before the fact. It is preparedness and patience that pay off under these circumstances. We aim to be considerably aware of the difference in market value and underlying value and purchase when the ratio is in our favor.
We believe it pays to be a long-term investor. The ability to take a long-term view is beneficial to portfolio returns. The longer you hold a security the more likely your actual time weighted return will match that of the security. Additionally, we believe a long-term view requires two other important aspects. The two other complimentary traits to a long-term time horizon are an independent thought process and a fundamental security analysis. We believe that when both independent thought and fundamental analysis is coupled with patience, it enables us to intelligently buy low and sell high. Though easy in theory, it is hard to accomplish in reality.
We believe that a reasonable process hinged to a well-defined investment philosophy will lead investors to satisfactory long-term results.