Posts Tagged ‘value letter’

Dear Clients,

As a general policy, we refrain from giving specific investment ideas. There is little upside to revealing our investments in specific, publicly traded companies. On the contrary, there is significant downside in telegraphing our methods and trade secrets that will ultimately hamper our ability to act discretely and quickly.  I will thus refrain from discussing specific investment ideas outside of regulatory requirements.

What I hope to impart through these memos is the business and investment policy of our partnership. We are not in the business of predicting the fluctuation of markets. Our expertise lies in seeking out discrepancies between value of price in mis-priced securities i.e common/preferred stock, warrants or bonds.

We view shares in a company as a very real & tangible ownership in the business. Mindful of the fact that we are minority shareholders, we typically seek businesses that are awash in cash, either as a result of their intrinsic earnings power or from the potential liquidation value of their assets.

While most investors typically treat the market like a casino, we take a different view. It is a constant that investment markets exhibit the same pendulum like swing time and time again between unwarranted euphoria and downright depression.

As avid students of the financial markets, we note with confidence that these price fluctuations often have little bearing on the economic condition of the business itself. We stand with conviction not because of unwarranted optimism, but cautious practicality. We place a large emphasis on the presence of tangible assets and demonstrated earnings power to help serve as anchors to reality.

This long term approach help sets us apart from the crowd. There are no free lunches in the world, none the more so in investing. At the heart of our investment policy is a central question we ask ourselves: Would we take control of entire ownership of the business given the chance?

If the answer is no, we do not hesitate to seek better investment opportunities.

Our job is to deliver longterm returns and not to focus on short term out-performance. A common question that often follows is whether investing is really just down to luck?

The answer is not at all. In the short run, any investor can make money through outright speculation and even magnify his returns with the use of leverage. On the basis, luck plays a crucial role in your success.

However, over the course of hundreds of investments, skill inevitably matters more. No matter how one rationalizes it, luck is not a consistent long term strategy to building wealth.

Most of the investment operations that we undertake in are unorthodox and other run against the grain of “common wisdom”. Our investment philosophy frequently leads us to businesses experiencing temporary economic distress. We favor such investments not for the sake of acting in a contrarian manner, but because they afford better opportunities for out-sized gains.

While seeking investments in distressed assets, we are mindful of John Maynard Keyne’s maxim, “Market can remain irrational longer than you can remain solvent.” We only seek investment opportunities that have the demonstrated capacity to withstand persistent declines in economic conditions.

We will eschew the use of leverage in the vast majority of circumstances. Our chief most responsibility is firstly the protection and preservation of the capital under our stewardship.

It is our firm belief that if one can avoid the losses; the winners will take care of themselves. This also explains our propensity to favor businesses that are backed up with substantial asset values. They are in our experience much more reliable determinants of value than projected earnings.


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