Read Widely. Different sources of ideas and different types of sources allows for varied and interesting opportunities to present themselves. We do not restrict ourselves to any one sector or geography. We are generalists, willing to go wherever we see value, as long as we can fully understand the company within our Circle of Competence.
Turn over many stones. The more stones you pick up, the greater the odds of your finding something interesting. The key is quantity. If we look at a few dozen ideas, we may find one or two with possible potential.
Triage quickly. Don’t get bogged down on each investment idea thrown at you. We quickly and efficiently whittle down and winnow the ideas to the few that deserve further research.
We research and analyze anything and everything related to the company and its business – years worth of annual reports and 10-Ks, quarterly calls, competitors, customers, suppliers, industry data, court filings, news articles, government statistics, etc. – all in a quest to fully understand the company and what makes it tick and to reach a proper valuation of the company and its prospects.
But it is not enough to just read and sift through mountains of information. It’s not enough to just analyze and dissect. The most important ingredient is time. To mull over, digest, and let percolate all the information being read, sifted though, and analyzed. To think it over, come back to it in a few days, and think it over again. One of the truest signs of a real gem is that you find yourself more excited about it the more you think about it. Time brings clarity. Time brings depth. Time brings conviction.
Even after researching a company thoroughly and liking what we see, we continue to stress test and vet the investment against various risks and scenarios that could potentially degrade or impair the value.
Constant Monitoring. We constantly monitor newsflow on the company and industry. More importantly, with our deep, fundamental understanding of the company and which metrics are truly key to judging the underlying business, we are able to assimilate incoming data points and pick out the truly important kernels of news from the mountains of chaff.
Periodic Reviews. In addition to constant monitoring, we schedule periodic reviews, generally around quarterly earnings releases. With the periodic review, we take a step back to look at the bigger picture of what progress is being made and to assess whether the company’s trajectory is matching our projections.
Annual Reassessments. In addition to quarterly reviews, we also annually reassess the company from the ground up. We look at the company with fresh eyes and question our basic assumptions, with a particular focus on valuation. Scheduling set times to review a company’s prospects and valuation is greatly helpful in reducing the seat-of-the-pants approach that often accompanies investment decisions.
Disciplined Selling means that we sell positions for only two reasons – either because the stock price has appreciated and approached our assessment of valuation and we no longer judge the company to be deeply undervalued or because we judge our thesis to be broken and are no longer confident in the company’s prospects. We do not sell for purely price-related reasons, nor do we attempt to trade around market movements.
Selling starts with buying. We only buy those few, select companies which we are confident have a highly favorable risk/reward profile. With our strong conviction in the investment and our deep research-based understanding of the company’s business, we remain invested for the long term through thick and thin until our investment thesis is borne to fruition.
