One of the keys to this business is having conviction based on your work that you're right and the rest of the world is wrong. If you don't have that confidence, you'll never buy anything because there's always something that can go wrong. Everyone thought the idea of buying stock in General Growth Properties right [...]
One general benefit of shorting is that it tempers volatility in both directions. Risk is created when markets get overvalued and short sellers help keep that in line. I'd argue that one reason housing got so overvalued is that until very late in the game everyone was on the same side of the trade, which [...]
Both our shorting and activism have done a good job for us in tempering the downside. No one likes going through a crisis, but our shorts and some activist longs that moved independently of the market in 2008 kept us way ahead of the market and better able to respond to opportunities as they were [...]
We don't short on valuation, but rather in situations where we believe a company is violating the law, or has misleading or inaccurate accounting, or has a potential regulatory problem.
One mistake we made with our investment in Borders Group was taking an active role at the company's request. Given the direction the industry was heading and how hard it was to make anything happen, it wasn't worth the time and energy. Paraphrasing Warren Buffett, when you find yourself in a sinking ship, sometimes the [...]
What we try to do is buy high-quality businesses at a price that is not reflective of the intrinsic value of the business as it is, and certainly not reflective of what the intrinsic value would be if it were run better. That allows us to capture a double discount. That's a benefit we can [...]
If our capital base were permanent, we'd probably only do active investments. But it isn't, so the fact that I don't ever want to be forced to sell an active investment in the course of an engagement means we also need to hold passive positions. Historically, around 55% of our portfolio has been in active [...]