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.

Topic: Price

We value a business by projecting its future cash flows and discounting these “owner earnings” into present value dollars. We will invest in a company only if it is trading at a significant discount to this conservative estimate of intrinsic value, which serves to both prevent permanent capital loss when we make mistakes and also provide outsized returns when we are correct.

Emerging Market Bottlers

Emerging Market Bottlers

One of the key characteristics that we prize with bottlers is the underlying reliability and predictability of their earnings.  In past economic downturns, the performance of these businesses was particularly resilient, as consumer demand for their goods was income inelastic,…

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Competitive Advantages, Growth, Economic Resilience, and Strong Balance Sheets

Competitive Advantages, Growth, Economic Resilience, and Strong Balance Sheets

We have written in the past about how we consider the relationship between price paid for and expected returns from an investment to be a “law” of investing: the higher the price one pays for a stock, the lower long-term…

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Where We Are Looking For Value

Where We Are Looking For Value

Previously, we shared the year-to-date results for several international indices and discussed how short-term volatility creates opportunities that we work to exploit.  Longer-term returns for this group of indices are even more interesting.  This chart shows their performance against the…

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Undiscovered and Unloved

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…

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Increasing Our Odds

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…

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Recency Bias, Global Interest Rates, and Return Expectations

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. …

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Price Matters

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…

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Determining Intrinsic Value

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…

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What to Build (or Buy) in Today’s Opportunity Set

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…

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Overpriced Markets

Overpriced Markets

In his January 1962 letter to his partners, Warren Buffett wrote, “I have consistently told partners that it is my expectation and hope (it’s always hard to tell which is which) that we will do relatively well compared to the…

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The Importance of Price

The Importance of Price

One of our four guiding principles of investing is to be disciplined about the price we pay for any security.  Our circle of competence includes many businesses that possess attractive durable competitive advantages and that are run by capable management. …

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When “Mr. Market” Frets, Opportunity Knocks

When “Mr. Market” Frets, Opportunity Knocks

Diligence when adding new capital is imperative to ensure that existing partners are not diluted out of sizable positions in businesses that we currently own.  We have been quite fortunate to acquire new positions and to add to most of…

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