We are prone to the classic value-investor mistake of being stubborn about selling even when the thesis starts to break down. I bought it cheap and now it's even cheaper I can't sell now! That's complicated by the fact that we're transparent with our investors about what we're doing, and it's hard to admit that [...]
We have sector limits, at plus or minus 10 percentage points from the percentage weighting of the 10 S&P 500 industry sectors. That gives us the flexibility to zero out sectors that are less than 10 percent of the index like utilities and telecom today or overweight fairly heavily in sectors we find attractive, such [...]
People tend to suffer greater pain from losing a given amount of money than they experience pleasure from gaining the same amount, so the typical investor is a pain avoider who shuns stocks when there’s any hint of trouble. That tendency results in a consistent overreaction to bad news that we believe creates investment opportunity.
We gravitate toward larger, diversified companies where the inefficient pricing comes from an excessive focus on short-term issues that we expect to mean-revert. If we’re wrong, in a big company our downside risk is limited because there are other parts of the business that can hold up value or even increase overall value if we [...]
We do tend to be a little dour at times and we definitely take a skeptical view of the facts. Warren Buffett once said, “You pay a very high price for a cheery consensus.” Value investors simply don't believe in cheery consensus. That's not a criticism I'd consider it a badge of honor.