Our Investment Philosophies
In November, 2007 - long before the financial melt-down of Wall Street - Mr. Freund was quoted in Business Week as having a “pretty grim view” of what’s to come. Check it out here.
When we look for potential investments for our clients, we adhere to strict investment philosophies, some of which are employed by Warren Buffett and Charlie Munger. If you’d like to learn more about these, visit our Influential Books page where we list many of the literary works that shaped our philosophies (including those of Warren Buffett and Charlie Munger).
It is a combination of these philosophies along with some basic strategies that allowed us to take a step back and clearly see the financial crisis before the vast majority of Wall Street.
Below are some of our high-level philosophies we utilize when managing our client’s portfolio(s).
OUR PHILOSOPHIES
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Investing for the Long-Term
We select only the best investments that we believe to be winners in the long term. We do not believe in buying and selling (“churning”) stocks frequently, nor do we believe in “timing the market”. In fact, the last question we ask ourselves before opening a position is: “If the stock market were to close for 3 years after we open this position, would we be okay with that?” If the answer is no, we don’t open it.
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We are not concerned with how a stock performs a day, a week, or even a month after we pick it. We are concerned only with the business itself. If you were to buy a farm with competent management, you wouldn’t check the farm every day to see how business was faring, would you? It’s the same with buying a portion of a company (through shares).
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We Are Not Like Wall Street
Wall Street thrives on activity and churning. Thousands of stocks are discussed, dissected, and “recommended” every single day. We, however, prefer to take a different approach and detach ourselves from this buzz of activity. Like the Oracle of Omaha, Warren Buffett, we are not anywhere near Wall Street, nor do we want to be.
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Rather than trade stocks frequently, we rely on a few solid picks per year, researched and examined over many months. The selections are chosen for their ability to generate solid profits, pay great dividends, and/or to leverage a growing global mega trend.
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Risk & Volatility
Risk should not be defined as losing money (henceforth “volatility”). It is, rather, inextricably bound up in your time horizon for holding an asset. Thus someone who can hold an asset for many years (5+) can safely eliminate most risks posed by volatility. It is therefore important to ensure that long-term investing is utilized to minimize risks related to volatility.
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Leverage
Because risk is bound so tightly to an investor’s time horizon, and because leverage forces the borrower’s time horizon to match that of the lender, volatility risk is no longer eliminated. Furthermore, volatility risk is magnified due to the cost to carry the assumed debt used as leverage. It is therefore important to never use leverage to invest, nor to invest in entities that are heavily leveraged.
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Indeed, had Wall Street followed this same philosophy, the Great Financial Crisis of 2008-2009 would never have occurred.
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Incentives & Insider Ownership
When two similar companies, one of which has high insider ownership while the other does not, face a situation which pits shareholder interest versus management interest, the company with higher insider ownership will be far more sympathetic to shareholders. Thus, it is important to understand that high insider ownership aligns management incentives with those of the shareholders.
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WANT TO LEARN MORE?
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If this sounds like a winning combination of strategy and philosophy for your investment portfolio, please follow the link below to find out more about what influences have contributed to our philosophies. Or, if you want to request a free 1 on 1 consultation about your investment portfolio(s), contact us by using the link below.
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Learn more about Our Influences >>
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