Finally, after the aforementioned criteria are met, we will only invest in such companies if their respective valuations are reasonable, if not cheap.
The simple, but uniquely persuasive fact of the superiority of index investing over active investing is
that in order to add value to the client, active investors must be considerably better than index
investing. History has proven that few are.
Our respect for index investing and investing as business owners has led us to two aspects of our
approach that are quite different than our competitors.
To outperform an index, we believe that our portfolios must be constructed as different from an
index as possible. Thinking and acting like business owners reduces our interest to those few
businesses which are superior. Both of these views lead to our focused (concentrated) approach.
To outperform our peers, we believe that we must emulate the most powerful attributes of index
investing. By definition, index investing is buy and hold investing. This leads us to our history of
minimum turnover of our portfolios. As a corollary, this also affects our stock selection. If we
expect to invest in companies for many years, we must then focus on those select companies with the
brightest multi-year prospects for growth. In addition, our view on risk is contrary to the typical
manager as well. We do not view risk via individual security price volatility (beta), rather all of our
risk analysis is centered on the individual business.
Why do we have a plus 10 year history of outperforming index investing and most active
managers? We are different. We are unique in that we think and act unlike the vast
majority of active managers. Our results speak to our process.
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