INVESTMENT PHILOSOPHY

Warren Buffett, Philip Fisher, Benjamin Graham, Peter Lynch, and Charlie Munger. We look up to these investors and their time-tested investment philosophies and within the context of each client’s objective, we use core principles embedded in these investment philosophies to construct investment portfolios and choose investments for clients.

Our concern, first and foremost, is long-term protection of principal and then providing an appropriate rate of return. In other words, we are very concerned about the permanent downside risk inherent in our investments, and subsequently endeavor to stay out of situations that tend to magnify this risk—such as chasing the hottest stock in the hottest sectors, buying speculative names, buying at overvalued levels, and so on. Our investment philosophy, we believe, provides us with the best chance of optimizing the long-term principal protection and rate of return equation. A few of the core principles and beliefs within this investment philosophy are as follows:

• View on Expected Returns: In our opinion, long-term returns and the risk we should expect from any investment is, first and foremost, a function of the intelligent effort that has been poured into evaluating an opportunity. Other characteristics such as market capitalization, sectors, and so on likely play a secondary role, if at all, in generating returns over the long term. We will always strive to thoroughly analyze all investments before we commit any capital on behalf of our clients.
• Market Price, Intrinsic Value and Efficient Markets: While we understand financial markets are efficient most of the time, we don’t believe it to be the case 100% of the time. We believe the market price of a security can differ from its intrinsic value (i.e. a price range a rational investor is willing to pay) and that this gap occurs during such periods of market inefficiency. As investors, we welcome this inefficiency by trying to buy an investment at a discount to intrinsic value or selling at fair or overvalued prices.
• Margin of Safety: We look for a reasonable discount between the intrinsic value range we have estimated for an investment and the price we are willing to pay for the same—a margin of safety. This margin typically helps protect us on the downside by giving enough room for any errors in our analysis or for any unforeseen factors that may come into play in determining an investment’s intrinsic value.
• Acquiring Ownership of Businesses: We see buying equities as equivalent to buying portions of businesses and subsequently becoming part owners in these entities. We view the market merely as a medium that enables us to do so.
• Diversification and Risk: We believe good investments are hard to come by and therefore invest in a limited number of carefully chosen investments. We like to think that evaluating each investment thoroughly mitigates risk more than a large number of holdings in a portfolio acquired without proper research or rational thought.
• Contrarian Approach: To help ferret out bargains in the markets we view bulk of the investments through a contrarian’s lenses. We expect bargains when others are selling indiscriminately and excessive valuations when others are buying without rationality. As Warren Buffet often says, “Be fearful when others are greedy, and greedy when others are fearful.”
• The Markets, Economy, and All Things Macro: We do not attempt to forecast the direction of security markets or the economy nor make decisions based on such forecasts. Our efforts will be directed towards finding undervalued opportunities, one at a time, in all macroeconomic and market environments.
• Simple and Understandable: We readily favor investment situations that are easy to evaluate while using conservative assumptions.
• Time Horizon and Performance: We intend to grow our client’s capital over the long term and we prefer to be judged on that basis rather than on a quarter-to-quarter basis. By long term, we are talking of periods in excess of three years or more (preferably more)—periods that include bear markets, if possible.
• Mistakes: We are likely to make mistakes from time to time, and when we do make them our clients will hear about them in an honest fashion. While we see making mistakes as an unavoidable result of investing in an uncertain world, we will also do our best to minimize our mistakes, learn from the ones we make, try not to repeat them, and to limit the damage caused. We believe that by sticking steadfastly to a disciplined approach our successes will outweigh our mistakes over the long term

While identifying individual securities, we use a disciplined investment process to identify securities that, in our opinion, are trading at market prices that are at an appropriate discount to our calculated intrinsic worth of these securities — we are looking for attractive businesses and securities we believe are “on sale”. In buying equities we act like prospective owners of the businesses we are buying into and will be mindful of factors that a true long-term owner would be concerned about.

While identifying suitable no-load mutual fund investments (or other types of funds), we strive to identify and use funds/ managers that share our investment philosophy and will give due consideration to past performance, transaction fees, expense ratios, and management style among other factors.