Our approach to investing is based on the idea that even the best companies in the world sometimes go through periods of negative market sentiment even though they are still fundamentally sound. And when they do, their stock prices often fall below their fair values. This period of negative sentiment we believe presents opportunity for a disciplined investor to make wise and profitable investments that are most likely to beat the market averages.

In addition, our approach also recognizes that a good investment strategy is as much about minimizing risk as it is about maximizing returns. According to Warren Buffett, the first rule of investing is never to lose money and the second rule is never to forget rule number one. One obvious conclusion we can draw from this is that investing is first and foremost about the avoidance of permanent loss of capital. In the words of Philip Fisher, “the standard by which any investment should be judged is not just how much can be made from it if all goes well. Rather, it is how much can be made in relation to the amount of risk involved”. Because we totally agree with these principles, our method of investing is based on two important attitudes of a conservative investor.

The first has to do with our order of priorities. In looking at an investment idea, our first and foremost concern is: ‘what can we lose?’ Only when it seems that the risks of permanent loss of capital is low does the second question comes up: ‘how much can we make?’

Our second attitude is related to our basic conviction that how much we can lose from an investment is to a large extent a function of the performance of the underlying business. Because of this, we do not base our analysis on stock-price movements, interest-rate fluctuations or even the prediction of the direction of the overall economy. This is not because we think that predictions of general economic activity are not important; but, rather because we believe that everyone, ourselves included, has limited abilities in forecasting the future. We totally agree with Neils Bohr who said that “prediction is very difficult, especially if it’s about the future.”

“Resolve not to be poor. Whatever you have, spend less. Poverty is a great enemy to human happiness: it certainly destroys happiness, and it makes some virtues impracticable and others extremely difficult.”-Samuel Johnson