The foundation of a successful investment is capitalizing on the market's mispricing of risk or incorrect discounting of future value. This requires us to be historically informed and intelligently contrarian: learning things others don’t and understanding things as they are rather than as they are believed to be.
Although we are fundamentally bottom up value investors, we do not simply look for investments with lower-than-average price-to-book or price-to-earnings ratios and/or high dividend yields. Any suggestion that such a framework defines value investing is a mischaracterization.
Our approach requires discipline, focus, and conviction. The discipline to only buy at a discount to intrinsic value, the focus to understand an industry and business deeply, and the conviction to hold an investment through market cycles, averaging down when the price trends lower.
Our Investment Focus
Our emphasis on risk management and absolute returns means our industry knowledge limits our investment focus. As such, our investable universe is companies operating within the Basic Materials, Energy and Power and Industrial Industries, as well as associated service companies. Furthermore, as our goal is always to understand the businesses we invest in as well as the management teams that run them, we maintain a concentrated portfolio that is ideally between 10 to 12 long positions and 6 to 8 short positions. Our approach remains scaleable by putting a market cap minimum of $200 million on all portfolio companies.
Given our backgrounds in political risk and experience working overseas in emerging and developing economies, we are always looking to expand our investable universe via the addition of new markets, but not new industries. We maintain an extensive network of industry contacts that are not easily duplicated and yield unique insight. At the same time, our past work overseas, academic study and relationships within US defense and diplomacy facilitate an accelerated understanding of new foreign markets.
The result of this unique combination is a growing investable universe of 2,491 companies, operating in 3 primary industries, 28 sub-industries, with a total market capitalization of $14.5 trillion, and trading in 24 countries.