Our
Philosophies
1. First Principles
First principles thinking is widely adopted by philosophers and scientists. TPC believes that a great investor should be as truth seeking as the great philosophers and scientists, because intellectual honesty is of utmost importance in investment decision making.
When first principles thinking is adopted in investment research and analysis, it requires an investor to decomposes business models into fundamental drivers and dynamics. It is a thinking process to understand the fundamental "why's" of a business. Once understood, the investor is in a much better position to consider many other important factors (the “what’s”) for the purpose of making investment decisions. It is a simple yet powerful concept.
2. Long Termism
Business fundamentals determine its intrinsic value, which in turn weighs on stock price in the long run. Once an investment is made on the merits of business fundamentals, sufficient time is required for the wonder of compounded return to play out. Therefore, a fundamental investor needs to think long term to truly grasp the potential of a business and to invest long term to realize the value of such potential.
While business fundamentals do not change quickly, volatility is inevitable in business cycles, amplified by human emotions and extreme but typically short-term events. For the long-term investors, volatility is not a risk, but a psychological cost to pay and an opportunity to gain.
3. Conviction Based Concentration
Each person has the same and limited amount of time on each day. As it takes time for an investor to build up conviction on any investment idea, the number of high conviction ideas is inversely correlated to the level of conviction on such ideas.
TPC believes that a concentrated portfolio with a few high conviction investments will perform better than a diversified portfolio for which an investor can only spend small percentage of limited time over large number of positions. Furthermore, the practice of focusing on high conviction ideas commits an investor’s mindset to be the long-term owner of the business, instead of short-term renter of the stock.
4. Great Business with Fair Valuation
Long term compounders, by definition, are great businesses. The reasons why a particular business is a great one may be different. Their resulting characteristics are similar – longevity across cycles and superior return on capital.
Investing at a fair price is equally important as identifying a great business. Overpaying for a business, even a great business, leaves little safety margin for the investor's ability to weather uncertainties and challenges any business may face across cycles. Fair valuation is not necessarily the same as a low price. Quantification of fair valuation may be part science, and part art. With the investment experience and business knowledge acquired over decades, the key principals at TPC seek to only have a rough idea about the right valuation range and invest within such a range.