What Investors Should Expect from Cook & Bynum:
- You should expect our partners to invest substantially all of our liquid net worth in our funds. We expect to earn the same returns as you. We will never invest with outside managers or run personal accounts parallel to our funds. We are more than happy to eat our own cooking.
- You should expect that we will not deviate from our philosophy or underwriting approach. This does not mean that we will not make mistakes but rather that these mistakes should not arise from a lack of discipline or adherence to our process. Our primary focus is avoiding permanent impairments of capital. As Buffett has written, we have “never believed in risking what [our] family and friends have and need in order to pursue what they don’t have and don’t need.”
- You should expect that we will only invest when we believe there to be a meaningful margin of safety – a discount between intrinsic value and price – in each investment. This requirement simultaneously helps minimize the impact of our inevitable mistakes and allows for outsized returns when we are correct.
- You should expect us to carefully consider what we know and what we don’t know in order to minimize these mistakes. Being disciplined enough to stay within our circle of competence is critical to our success.
- You should expect us to learn from our mistakes and candidly report to you about them.
- You should expect us to focus on long-term results not interim fluctuations in stock prices. This long-term orientation is foundational and critical.
- You should expect us to pay close attention to cognitive biases and appropriately account for those in our process and conclusions. This awareness does not, unfortunately, mean that we will always avoid these biases. Our attention to them, however, should minimize their impact on our results.
- You should expect us to avoid leverage assiduously. Leverage is a two-edged sword and can prevent an investor from capitalizing on price disruptions by turning temporary price declines into permanent impairments of capital. In fact, the long-run expected return on a levered portfolio is -100%.
- You should expect that our approach is both attentive to transaction costs and tax efficient.
- You should expect us to hold cash in the absence of qualifying investment opportunities. We feel it is our obligation to do nothing when compelling opportunities do not exist.
- You should expect us to build our portfolio without regard to a benchmark or index. Instead, we prefer to invest our capital only in our best ideas. A portfolio designed to diverge only slightly from a benchmark guarantees mediocre results.
- You should expect us to remain an independent, partner-owned firm whose investment decision-making does not suffer from institutional imperatives or directives.
- You should expect us to always put your interests first. We avoid practices common in our industry, like soft dollar arrangements or security lending splits, that would benefit the advisor over the client.