Our process emphasizes the management of risk. Risk, in our opinion, is the permanent loss of capital, not volatility. We make all investment decisions with a thorough understanding of downside risk. Outperformance, should it occur, happens not by always picking the best performing asset but rather by not losing money at points of maximum pessimism. We manage risk by investing with managers that focus on valuation and insist on never paying more for an asset than it is intrinsically worth. We also invest with managers who have the courage of their convictions and have proven not to be susceptible to outside pressures or emotions.
One of the more difficult, yet important, aspects to our process is how we look through the portfolio holdings of a fund. We do not take things at face value and thus we seek to understand, deeply, what we are buying. As part of our process we will take a portfolio apart and analyze the underlying, individual securities that are contained within. We perform our own qualitative and quantitative analysis. This in depth research helps us ensure that the stock meets the guidelines with which the manager invests our money. It provides us with the knowledge that the manager is doing what they are saying. If we can neither reach the same conclusions nor understand why a stock is in the portfolio we will not invest our money with them.