To give an example of the type of hedging we do, we invested last year in Arkema, a specialty chemical company that was spun out of France's Total. It had all the classic spin-off dynamics and we saw it as an excellent opportunity to get in at a good price as a low-margin, neglected company [...]

One thing we try to do in industry due diligence is to find the “guru.” Getting to the truth can really be accelerated by finding the handful of folks who truly understand a business or industry. A deep database of relationships with industry experts is a key value-add to that process.

For lower-quality businesses, we put more emphasis on whether there is a catalyst or not. If something is cheap but the business dynamics aren't great, time can be your enemy unless you see a clear catalyst for value to be recognized.

Over the years we have also become very leery, based on experience, of companies that need to raise capital in order to survive and prosper. It's not a good thing to be vulnerable to the whims of the capital markets, which can close rapidly and surprisingly.

The biggest mistakes we ever made involved a few investments in highly acquisitive companies that had balance sheet leverage. The big lesson is that when you mix financial risk, in the form of leverage, with operating risk, from having to integrate acquisitions, you compound the overall risk dramatically. If we come across a levered acquisitive [...]

There’s a real premium in this business on innovation. That doesn’t mean chasing the latest fad, but it does mean recognizing new opportunities and taking advantage of them even if they don’t fit exactly into your historical playbook.