Our Philosophy

Cook & Bynum seeks long-term growth of capital by making concentrated investments in a select few undervalued domestic and foreign businesses. This pure value investing philosophy is based on the teachings of Benjamin Graham, John Burr Williams, Warren Buffett, and Charles Munger.  To minimize the risk of permanent capital loss and maximize long-term returns, the portfolio managers make their investment selections using the following core criteria:

  1. Circle of CompetenceWe only invest in businesses whose core economics and future prospects we can understand and reliably predict. We know our ability to recognize our limitations will be as important as our ability to execute competencies.
  2. Business: We seek to invest in companies that have durable competitive advantages that allow them to produce predictable cash flows and earn high returns on equity for extended periods of time.  If a company’s business does not have a significant competitive advantage, its results will be difficult to forecast.
  3. People: We invest in companies whose management teams are capable and trustworthy, think and act like shareholders, employ conservative balance sheet and other accounting policies, and make wise capital allocation decisions. The risk of permanent capital loss can be lowered significantly if we only invest in businesses whose managers view us as partners.
  4. PriceWe seek to invest in companies whose shares are trading at significant discounts to our estimate of their intrinsic values.

    We use fundamental, bottom-up research to carefully assess whether an individual company meets these core criteria. This research often includes, but is not limited to, review and analysis of company filings, discussions with management, visits to company facilities, and conversations with the company’s customers, competitors, and suppliers. When a company appropriately satisfies the first three of these criteria (Circle of Competence, Business, and People), we will value it by projecting the future cash flows expected to be generated by the business and then discounting these ‘‘owner earnings’’ into present-value dollars using an appropriate interest rate. Cook & Bynum will buy a company’s security only as long as it is trading at a large discount to our conservative appraisal of its intrinsic value.

    Learn more about why we think our approach is different.

Thoughts On Investing
Thoughts on Investing

This manager commentary provides insight into our philosophy and the key tenets that have consistently underpinned our value investing approach. These excerpts are not all-encompassing, although in total they should provide a clear sense of “how we think” and our application of a value philosophy as pioneered by—among others—Ben Graham, Warren Buffett, and Charlie Munger.

C&B Notes
Big Data2_web

The purpose of C&B Notes is to pass along ideas, concepts, stories, and information that are informing and influencing our worldview and “latticework of mental models.”

Harnessing Big Data

Cheap access to mountains of data that were previously uncollectible and/or unmeasurable will lead to transformative insights. Simply having greater amounts of information, however, does not allow users to ignore statistical foundations. Instead, it requires that they be more watchful for all the biases and/or errors that a data avalanche may obscure.
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Explaining a Different Type of Inflation

A team of scientists using a South Pole-based telescope revealed this week that they have detected the existence of primordial B-mode polarization. The full significance of the finding is still to be determined, including whether the B-modes can even be observed again. But, if true, one of the key implications would be the support it provides for cosmological inflation, which is the theory that the universe expanded exponentially during the Big Bang.
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Travelogue
Travelogue

There is no substitute for being on the ground to assess how businesses are really performing. Accordingly, international and domestic travel is a critical component of our research. This Travelogue includes snippets from some of these international trips.