We won't short on valuation say, because Google is trading at 20× next year's cash flow when we think it should only trade at 15×.
We're looking for a total annual return of at least 25 percent, with position sizes adjusted for the degree of difficulty. For a given expected internal rate of return, the lower the outcome's expected volatility, the higher the position size. We create an estimated risk-adjusted Internal Rate of Return for everything and then allocate the [...]
We find opportunity in looking at the different values ascribed to a company's different asset classes. If the debt markets would provide 100 percent financing of a company's total market value, that usually means the equity is undervalued. Whether Facebook is worth 15× sales or 10× sales is not something we'll take a position on. [...]