How We Think
These topics, which are largely excerpted from client letters dating back to our 2001 inception, provide insight into our philosophy and the key tenets that have consistently underpinned our investment approach, which has remained unchanged since our founding. These ideas and concepts are not all-encompassing but do provide a sense of “how we think” and our application of our investing philosophy.
Undiscovered and Unloved
The stock market is generally efficient, and the prices of individual stocks trend towards the underlying intrinsic values of their respective businesses. As value investors, we rely on this efficiency – we expect that temporarily mispriced businesses will eventually be…
Read More
An Often Unexploited Advantage of a Controlling Shareholder
In October 2016, we had a discussion with the CEO of one of our companies about not surrendering the advantages of having a controlling shareholder or a small group of well-aligned controlling shareholders who have a long-term orientation. The conversation…
Read More
Increasing Our Odds
As the new Lindley investment reflects, our mandate (i) is focused on finding attractive investments one-by-one and (ii) affords us the flexibility to invest capital only when we think an investment is truly compelling on an absolute basis. We assess…
Read More
The Mystery of the Missing Goods
A Brief Introduction to Price Controls: Consumers see the price of a good as an expense and therefore price increases as a burden. Producers see prices as income and therefore price reductions as a threat. This healthy tension between buyers…
Read More
Recency Bias, Global Interest Rates, and Return Expectations
Evolution has rewarded humans (and animals in general) for recency bias. For example, if one of our ancestors found food down a certain path one day, that was probably a good place for him to look again the next day. …
Read More
Incentive Misalignment in the Money Management Business
As we have written before, the art of successful investing requires both discipline and an even temperament. The more emotional an investor becomes, the more likely he is to buy high and to sell low – following the herd to…
Read More
Price Matters
The math of investing is not difficult and can be done with a little division and some basic algebra, but the math is essential. Buying and selling securities without a fluent understanding of how intrinsic value is calculated is mere…
Read More
Determining Intrinsic Value
We have written extensively in the past about the centrality of intrinsic value in our investment process. A company’s stock price can sometimes diverge widely from its intrinsic value, which Ben Graham explained thusly, “In the short run, the market…
Read More
What to Build (or Buy) in Today’s Opportunity Set
Capital Investment Decisions: When making the decision to prospect for oil by drilling a well, one must estimate the likely cost of extracting the oil and compare that to one’s expectation of the market price of oil over the useful…
Read More
The Virtue of Inactivity
I think the [Berkshire Hathaway’s] record shows the advantage of a peculiar mind-set – not seeking action for its own sake, but instead combining extreme patience with extreme decisiveness. It takes character to sit there with all that cash and…
Read More
Focus On The Customer’s Decision
Earlier this month, Kraft split into a faster-growing international snacks business and a slower-growing domestic foods/grocery business. Despite neither of the companies’ fundamental business prospects changing one iota, the market reacted to the news by trading both of the stocks…
Read More
The Mind of a Value Investor
Seth Klarman, one of the best investment thinkers and writers within our discipline, recently gave an insightful perspective on the mindset of value investors during an interview with Charlie Rose: Value investors have to be patient and disciplined, but what…
Read More