is to generate an investment portfolio with strong investment fundamentals and the potential for high returns. We adopt a hurdle return approach to maintain our focus on delivering attractive returns during a range of market conditions and hold only compelling investments.
We find compelling opportunities in a variety of situations, most commonly among monopolistic industries, in high growth markets, where technology is creating step changes, in out of favour investments, or when purchasing assets from distressed sellers.
Understanding risks is essential at the individual investment level. Every opportunity has its own unique risks and we build an intimate understanding of these individual risks for every investment we make. Where the expected returns cannot make a compelling case over the risks, no investment is made.
The investment process we follow is intense and based on fundamental research.
The individual business risks carried by the companies we invest in are far more important than the day-to-day movements of their share prices.
In assessing risk we believe:
- The best investments are often a result of risk being misunderstood
- High leverage increases the financial risk, often to a degree businesses don’t realise
- What is low risk today is not necessarily low risk tomorrow and vice versa
- Increasing returns over the long term is highly valuable, whereas, reducing the annual portfolio volatility or standard deviation against an index has only marginal benefits
- Often volatility can be the cost of higher returns over the long term
- Risks and rewards should be viewed together; investing is simply the interplay of these concepts
- Ensuring each exposure within the portfolio is of the highest calibre is an effective means of managing portfolio risk
- Blending different risks into the portfolio or increasing the number of investments held solely for the purpose of increasing diversification often results in lower returns and fails to recognise that under certain conditions the correlation between these assets is in fact very high.