We look back as far as possible to inform what would be the worst-case levels of revenues and margins, and then apply what we think are trough multiples to the resulting worst-case earnings. If the worst case is more than 20 percent below the existing share price we won't buy it, no matter how much [...]
We don't invest in things that could be a coin flip between doubling or going to zero. We want the downside of every holding to be no more than 10 to 15 percent and the upside to be at least 50 percent. The key for us is to not be wrong about the downside.
We’re far more interested in cyclical companies that are well capitalized, that don’t lose money at the bottom of the cycle, and whose peaks and troughs are both higher over time. We’d be less apt to buy into something like a capital intensive pulp and paper manufacturer, which bleeds money at the trough and, when [...]