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Individual Investor
Buffettian Value
I invest in a concentrated portfolio selected according to the principles of value investing as practiced by Mr. Warren Buffett. I aim to acquire shares of exceptionally resilient and growing businesses, purchased at discount in times of market fear and uncertainty. 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. 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.
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 will 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 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 model’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.
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 a minor (5-15%) percentage of the portfolio to shares in good (but not excellent) companies acquired at exceptionally 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.
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.
Model commentary
Why we added Sanofi Aventis, Halliburton and Western Union to our portfolio
11 January 2013
Troubles in Europe opened the way for our purchase of the French drug company.
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