As the managers of Cook & Bynum, we make concentrated investments in equity securities when we feel that risk is low and potential returns are high, recognizing that bigger stakes can be taken when outcomes are more certain.  In the absence of compelling long-term equity investments, we feel very comfortable holding cash and cash equivalents.  This investment strategy may not be the best way to earn high returns in any given year, but we believe it yields a portfolio that (i) has both high return and low risk characteristics, (ii) avoids the permanent capital loss endemic to short-term strategies, and (iii) earns the highest cumulative returns over a 20+ year time horizon.

While we are long-term, buy-and-hold investors, Cook & Bynum will generally sell a security under the following conditions:

• We will begin to liquidate an investment when it appreciates to the point that it approaches our estimate of its intrinsic value.  An investment reaching our appraisal may have further upside potential, but it will no longer offer an appropriate margin of safety for putting capital at risk.
• We will also sell any investment that has a material adverse change in business, management, or return prospects since we invested.  Negative developments by themselves do not necessarily trigger the selling of a position, but should an event lower our appraisal enough or prevent us from reliably appraising the intrinsic value of the investment, we will sell it.  Positive events may cause us to adjust our appraisal of value upwards.  We appraise our positions on an ongoing basis throughout the life of the investment.
• Based on opportunity cost considerations, we will generally sell relatively overpriced securities to buy relatively underpriced securities as these specific opportunities arise.