PRINCIPLES

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Investment Principles

Investment Strategy

Risk Management

ENGLISH

DEUTSCH

Prudence

 

Our firm's investment principles are centered on the margin of safety concept first introduced in 1934 by Benjamin Graham in his seminal work Security Analysis (co-authored with David L. Dodd) and revisited in his 1949 investment classic The Intelligent Investor.

 

This concept is based on the premise that stock prices do not always equal the intrinsic value of companies. The sometimes irrational behavior of market participants can render the market inefficient, giving investors the opportunity to buy mispriced securities at a discount from their economic value and providing the margin of safety which is crucial to prudent investing.

 

The basic principles of “value investing” are just as valid today as when they were first written, and our own extensive research indicates that they form as sound an intellectual framework for investing in the global equity markets as for investing in US stocks.

 

Discipline

 

To block out emotion, market noise and other factors that interfere with rational investment decisions, we use a highly disciplined quantitative approach to selecting markets and stocks based on intrinsic value, seeking as wide a margin of safety as possible to reduce investment risk and maximize potential long-term returns.

 

We believe that economists and market experts generally overestimate their ability to predict the future, and we do not pretend to have a crystal ball ourselves. We therefore stay away from market timing and other speculative strategies that depend on explicit forecasts. Investing in companies on the basis of their underlying value is, in our view, the best way to prepare for an inherently unknowable future.

 

Patience

 

By creating a margin of safety through methodical market and stock selection, we are providing the first two ingredients of successful investing: prudence and discipline. The third ingredient – patience – must come from the investors in the funds we advise. We encourage investing for the long term to reduce the general stock market risk, which declines as an investor’s time horizon lengthens, and to bolster returns by minimizing transaction costs and taxes. Long-term investors benefit most from performance advantages created by active portfolio strategies and are able to take maximum advantage of  the power of compounding, which Albert Einstein purportedly called “mankind’s greatest invention because it allows for the reliable, systematic accumulation of wealth.”

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