We have been investing for the long term for nearly 50 years, across multiple market cycles, portfolio managers and generations of leadership. The way we execute our strategy has evolved over the years, but the basic principles of value investing that guide our judgments have never changed and never will.
We think investing with an unusually long-term perspective moves us from the realm of the unpredictable to the realm of the understandable.
WE DON’T JUST THINK LIKE LONG-TERM BUSINESS OWNERS. WE ARE LONG-TERM BUSINESS OWNERS.
We are keenly sensitive to false precision risk. We don’t believe in target prices. We know that value exists within a range, and is hard for even a thoughtful analyst to pinpoint. We are also sensitive to reinvestment risk. Great companies at good prices are hard to find. If we sold them every time they reached fair value, we could struggle to find replacements. Then there is expense risk. Trading and taxes create real costs with real consequences, even if they’re not immediately apparent in headline returns. Our long-term view means that business results, rather than value arbitrage, drive our returns. As such, we have a low inclination to trade.
Reading company filings and crunching numbers is just the start of our research process. We take pride and pleasure in investigating a company from all angles, doing the kind of on-the-ground, primary research that an enterprising journalist might do. This work can be painstaking, spanning months and sometimes years, but we have found that it often yields surprising and valuable insights, some of which can be put on a spreadsheet but many of which cannot be. This sort of intensive primary research is how we spend most of our time.
We prize the outliers – the companies that define a market or dominate a niche; companies that are far superior to the average business. Most of the time, wonderful businesses trade expensively in the stock market. We try to wait for and capitalize on the rare moments when they can be purchased for a discount to their intrinsic values that incorporates what we consider the single most important concept in investing: a margin of safety. Our small collection of investments bears little resemblance to the S&P 500 or any other index. In fact, our top ten investments often account for >60% of the value of our portfolios. The S&P 500 may be relevant for assessing our performance over the long term, but it has no bearing on how we construct our portfolios.
Each of our two dozen investment professionals is an analyst. We all do primary research. We all enjoy learning and discussing what makes businesses tick, and we try to provide a great home for people passionate about fundamental research. More than ten of us have been with the firm for a decade or more, and those of us serving as portfolio managers have a combined tenure at the firm of 90 years. We all come to the job with different backgrounds and perspectives, but we are all also steeped in the same value investing principles. The current team has investigated and debated the investment merits of thousands of companies together. The resulting institutional memory, the respect we have for one another’s work, and the trust we have in one another as individuals – these are our firm’s most valuable assets.
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