How We Apply Practical Wisdom
One page summary of our philosophy
Fish where the fish are.
Have the curiosity, capability, and patience to find and invest in the best opportunities, regardless of where they are found.
Focus on quality.
Businesses and markets are complex adaptive systems that require a big-picture perspective to identify strong competitive positions, including the ability to dominate via extreme scale or defend a profitable niche. Quality in business, business model, and management matter, as do market context, secular tailwinds, and incentive structures.
Chase excellence (not the scoreboard).
Chasing excellence beats chasing the scoreboard. This includes excellence in the positions we own, why we own them, and how we behave as owners. Excellence in thought, word, and deed will produce a satisfactory score in the long-run.
Buy wonderful businesses.
Businesses are the productive engines of wealth creation. Businesses with wonderful economics, ecosystems and incentives (e.g., participants that act like owners, and ideally are owners) produce very satisfactory long-term returns.
Buy at fair prices.
Buying wonderful businesses at a discount to their intrinsic value provides a dual margin of safety that reduces risk of permanent loss of capital. A lot can go wrong, and if the purchase price was fair enough one can still earn satisfactory returns.
Concentrate.
There are only a handful of wonderful businesses at any given time, and only a fraction of these will be offered at a discount to their intrinsic value. Why invest in second-rate opportunities? Concentration also allows us to deeply understand and monitor what we own and should generate strong performance if we use our research to make thoughtful judgments.
Hold.
Activity (e.g., trading) is a substantial source of fees and taxes. Returns are higher when fees and taxes are lower.
Pay attention to incentives.
“People follow incentives” is the best three-word summary of economics. Understanding the incentives in a system is the best way to assess how it may play out. Operators with skin in the game benefit together with owners, not at owners' expense.
Play the long game.
Intrinsic value in a business grows over time, often in ways that are hard to predict over short timeframes. A portfolio of wonderful businesses bought at fair prices should be periodically monitored but mostly left alone to let their opportunities play out.
Evolve.
Practical wisdom and first principles reasoning are timeless. Business landscapes and applications evolve. We seek to evolve with them and be beneficiaries of change rather than victims of it.
Survive.
To finish first, we first must finish. We position ourselves to survive an uncertain future through broad awareness and positioning against factors that could lead to permanent loss of capital including dynamics within the businesses we own and variables beyond them such as currency devaluation, new forms of competition, and new forms of economy made possible through technological innovation.
Stay in great company.
The above principles have been proven and are actively applied in capital markets. Through observing the actions of like-minded investors who successfully apply these philosophies one gains cognitive leverage, can make others' best ideas their base ideas, and stay in great company. High performers in any discipline don’t do so alone.
Stay humble.
There is a rich history of investors increasingly acting like they can predict the future and trading accordingly. This usually ends poorly. Intentionally cultivated humility is the best antidote to stupid actions, and it is easy to cultivate. Look at the nearest five people, then spend five minutes writing down all the things they likely understand that you do not.
Don’t get in your own way.
We can fool ourselves into poor performance. For those who play the long game, exposure to short-term information and environments is dangerous: regularly checking market prices, ingesting short-term news (e.g., CNBC), competing over short periods, and busy/frantic environments are all barriers to performance and are deliberately avoided.