Our Philosophies

01

First Principles

First principles thinking is widely adopted by philosophers and scientists. A great investor should be as truth-seeking as a great philosopher or scientist, because intellectual honesty is of utmost importance in investment decision making.

Applied to research and analysis, first principles thinking requires an investor to decompose business models into their fundamental drivers and dynamics — the thinking process that answers the fundamental “why’s” of a business. Only then is the investor in a position to weigh the many other factors — the “what’s” — that drive an investment decision. It is a simple yet powerful concept.

02

Long Termism

Business fundamentals determine a company’s intrinsic value, which in turn weighs on its stock price over 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. A fundamental investor therefore needs to think long term to grasp the potential of a business, and to invest long term to realize it.

Business fundamentals do not change quickly, but volatility is inevitable — amplified by human emotion and by extreme, typically short-lived events. For the long-term investor, volatility is not a risk. It is a psychological cost to pay, and an opportunity to gain.

03

Conviction Based Concentration

Every person has the same limited hours in a day. Conviction takes time to build, so the number of high-conviction ideas an investor can hold is inversely correlated with the depth of conviction in each.

We believe a concentrated portfolio of a few high-conviction investments will outperform a diversified portfolio spread across so many positions that only a small fraction of the investor’s time can be given to each. Concentration also commits the investor’s mindset to being a long-term owner of the business, rather than a short-term renter of the stock.

04

Great Business with Fair Valuation

Long-term compounders are, by definition, great businesses. The reasons a particular business is great may differ; the resulting characteristics are similar — longevity across cycles and superior return on capital.

Investing at a fair price matters as much as identifying a great business. Overpaying, even for a great business, leaves little margin of safety against the uncertainties any business faces across cycles. Fair valuation is not the same as a low price — its quantification is part science, part art.