I invest in a concentrated portfolio that adheres to similar value investing principles practiced by Mr. Warren Buffett. I seek to buy shares of exceptionally resilient and growing businesses, and buy them at a discount I follow a buy-and-hold strategy and let my investments compound for years.
These are my main principles:
1. Seek to acquire shares in extraordinary businesses at reasonable prices. I invest in “franchises,” i.e. businesses supplying a deeply needed product and benefitting from durable barriers to entry.
2. Invest with a very long term horizon, transcending business cycles and market swings.
3. Capitalize on other investors’ emotions. I have a contrarian approach, buying aggressively in periods of fear and pessimism and exploiting euphoria as an opportunity to take profits.
4. Acquire securities at a large discount to what I believe is the intrinsic value of the underlying company.
5. Win the battle before it is fought. I focus on companies with highly predictable earnings patterns and aim to exclude avoidable sources of risk such as competition, industry, regulation, and credit risk.
1. I use simple software programs to screen out candidates with desired characteristics (e.g. margins, ROE, gearing and growth rates).
2. I screen further based on profile, recent histories and main financial indicators of candidates.
3. I conduct in-depth due diligence on industry, business model, competitive position, quality of management and financing.
4. I assess suitable candidates with a process of valuation using proprietary methods.
5. Stocks are placed in a watch list. I receive automatic alerts once the price of any security falls below a predetermined level. If conditions are suitable, I buy.
Data sources: Value Line, Bloomberg, analyst reports, Wall Street Journal.
I believe in a relatively concentrated portfolio, typically holding about 10-15 stocks. A focused portfolio allows me to hold stocks that I have researched extensively and know intimately, choosing only best of breed. To hedge from unpredictable risks, I typically refrain from holding more than 20% of capital in any one security. To this end, I rebalance the portfolio from time to time on an opportunistic basis.
I try to hold no more than one stock in a single industry, and may buy ADRs of foreign companies.
I aim to select stocks that can be held indefinitely. I will, however, sell any of the portfolio's stocks if one or more of the following conditions are met:
1. The share price has risen above the company’s intrinsic value as I’ve determined it.
2. There has been a material adverse change in the company since the time of purchase, which significantly reduces its intrinsic value or worsens its risk profile.
3. There is a significantly more appealing opportunity on the market and I do not hold any excess cash. In this scenario, I may sell the least attractive holding to create cash, even if it has not reached the target price.
I may dedicate about 5 to 15% of the portfolio to companies that I believe are of good but not excellent quality, but happen to be trading at what I think are very low prices. Similarly, I may engage in shorter term capital commitments in particularly attractive special situations (e.g. spin offs, mergers). Typically these investments will have shorter duration and will always be acquired with a value investing mindset, i.e. significantly below intrinsic value as I’ve calculated it.