We generally sell at around 90 percent of our estimate of business value and we try to be quite disciplined about it. I've never understood why value investors who are very disciplined on the buy side become momentum investors when they sell, saying they'll wait for the market to tell them when it's the right [...]
You can understand why many succumb to the pressure to hug the index, so to speak. But we believe if you go down the road of trying to make sure you'll never do much worse than the index, you're almost insuring that you'll never do well enough to justify your compensation as an active manager.
We've never thought it was a good idea to demand unanimous agreement in making a buy decisions because the best investment ideas tend to be somewhat controversial. The risk in forcing unanimous agreement in any committee structure is that you too often weed out your better ideas.
One of the big mistakes value investors can make is to be too enamored with absolute cheapness. If you focus on statistical cheapness, you're often driven to businesses serving shrinking markets or that have developed structural disadvantages that make it more likely they're going to lose market share.
In ballpark terms, we like to be a buyer when the current share price is no more than 60 percent of our estimate of business value, which is the highest price a cash acquirer could pay for the entire business and still earn an adequate return on their investment. The words are all important. By [...]
Given that what we're looking for is clear and has been consistently applied, we can give our analysts a great deal of freedom in identifying and pursuing ideas. They know that if they can't explain why something is at a discount to value, why that value is going to grow, and why we should be [...]
At our Tuesday meeting an analyst will give a short summary of why he believes the idea meets our criteria and then everyone around the table tries to shoot holes in it and prove that he's wrong. You have no friends in that meeting everyone is trying to prove that you're making a mistake. We're [...]
We put a lot of emphasis on how management communicates. All shareholders are entitled to candid, timely communication from management and when it's lacking, it's pretty obvious. You can be two-thirds of the way through a shareholder letter and it may be so full of consultant-speak that you have no idea what company it is [...]
We like to invest in companies in which we think people are paying attention to the wrong thing, so if 80 percent of investor attention is focused on something that you think is less than 20 percent of the story, it’s a good opportunity to take a look at the business.
High-quality businesses tend to be characterized by things like strong brand names, customer loyalty, pricing control, some cost advantage and growing long-term markets. Low-quality businesses, which don’t have much control over their futures, exhibit the opposite characteristics. We generally consider cyclical, commodity businesses to fit this more negative profile and so are less invested there.