Investment philosophy
We adapted our approach from Warren Buffett, who was in turn shaped early on by Benjamin Graham: buy wonderful businesses with wide economic moats, at prices meaningfully below intrinsic value, with a comfortable margin of safety.
Over the short term, financial markets can be chaotic. Share prices depend on the people buying and selling them, and emotions such as fear and greed regularly push a price away from what a business is actually worth. Short-term pessimism can send a wonderful company's shares below intrinsic value — and that gap is where we look to invest, with a wide margin of safety. Over the long term, we believe a share tends to rise at roughly the same rate the underlying business increases in value.
“In the short run the market is a voting machine, but in the long run it is a weighing machine.”
Benjamin GrahamA core ingredient of our philosophy is knowing so much about an investment that we can work out its intrinsic value ourselves: how it makes money, the durability of its earnings, its weaknesses, its opportunities for growth, the strength of its competitors, and the honesty and competence of its management. We only invest when the price sits significantly below that value.
We also weigh the regulatory climate, labour and supplier relationships, shifts in technology, competitive vulnerabilities, pricing power and scalability. We treat financial statements with a healthy dose of scepticism, and recast the figures — free cash flow, working capital, fixed assets, intangible assets — to fit our own view of reality rather than management's.
“Investing without research is like playing stud poker and never looking at the cards.”
Peter LynchCompetitive advantage
Most fund managers are boxed in by Financial Services Board asset-allocation rules that force them into dozens of mediocre positions. We aren't a fund — we're a company, and that changes what's possible.
No one gets rich from their twentieth-best idea. Regulated managers must spread capital thin; we concentrate on our best ideas.
Operating as a company rather than a fund manager lets us invest across every asset class, including smaller and private companies most institutions can't touch — where less demand means better prices.
Large institutions separate analysis from portfolio management. We don't — the people who study a business are the people deciding what to buy and sell.
We've run businesses, managed restructurings and built operations from scratch — not just studied financial statements on paper.
Our shareholders are true investors, not speculators — giving us room to make contrarian moves in declining markets instead of being forced to exit at the worst possible time.
“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”
Benjamin Graham