Our Beliefs

As a commitment to our subscribers, we are dedicated to maintaining the highest standards of ethics in our research. While we aim to achieve success with our stock selections, we acknowledge that not all ideas will be successful. To maintain transparency and accountability, we will consistently and objectively display the outcomes of all our selections on our Research Vault page. Portfolio performance is presented in accordance with the same principle. We believe that this commitment to ethics and openness will foster subscriber trust and confidence in our writings.

First Principles

  • Markets rarely price assets accurately. Even though market prices are generally wrong, they should always be respected.
  • “Risk” to owning a stock is not volatility; it is the likelihood of impairment to the earnings generation ability of the underlying business.
  • The “price” and “value” of an asset are fundamentally different and can diverge. Barring certain frictions, the price of an asset will converge toward its intrinsic value.
  • The value of a business is equal to the sum of its future cash flows discounted at a rate linked to risk and opportunity cost.
  • Finding mispriced assets and profiting from these opportunities is repeatable with the proper research and decision-making process.

On Companies

  • Intrinsic value derived from earnings power is preferable to one that is predominately composed of cash or other assets.
  • A quality business is one where its earnings generation potential will grow stronger over time. We consider these investments “long theta” in options speak.
  • The less mature a business is, the more important the management team.
  • The forces that affect demand for a product or service can be characterized as faddish, trend-driven, or cyclical.
  • While good corporate governance helps protect against malfeasance, it does not guarantee management will act in the best interest of shareholders. No amount of checks and balances can mandate ethical behavior.
  • Change variables at the company level (e.g. earnings growth, sales growth, change in margins, change in ROIC, etc.) have little to no correlation from one time period to the next.
  • All of Porter’s five forces are not of equal importance; the potential for new entrants is the most important.

On Investing

  • Disciplined portfolio management is more important than being a good stock picker.
  • Investing is a blend of art and science and cannot be fully replaced by computers; the human element is critical.
  • A 70/30 blend of intellectual humility and intellectual confidence will lead to better investing.
  • Absolute valuation models are superior to relative valuation models.
  • Overconfident single-scenario thinking is the most harmful trait an investor can possess.
  • A self-awareness of behavioral biases that are inherent to all investors- professional and otherwise- is necessary to avoid investing pitfalls.
  • Investing should be applied with an objective view of the real world and devoid of “hope investing”- in which people invest how they wish the world could or should be.
  • Risk is something that can be defined and strategized around. Uncertainty is unanalyzable and should be treated differently or avoided altogether in the investment process.
  • Having a process that limits outcome bias and has an open feedback loop is critical.
  • Opportunities to find mispriced assets are greater in asset classes that have less coverage and are inaccessible to sophisticated investors.

On Financial Markets

  • In a system that protects private property and allows for people to benefit from their hard work and creativity, a stock market index that is reflective of its country’s underlying economy will trend higher over time.
  • Markets function best within a framework of proper and enforceable laws and with little to no intervention. This mechanism is optimal for allowing the flow of capital to the most productive ideas.
  • Fear and greed manifest in cycles. Fear spreads to a point where excessive fear gives way to greed and greed spreads to a point where excessive greed gives way to fear.
  • Markets can be aptly characterized as non-linear dynamic systems in which fear and greed drive prices away from equilibrium.
  • Feedback loops are behavioral and technical; an understanding of when feedback mechanisms dominate price behavior is essential to identifying periods of fragility and periods of opportunity.
  • For the intermediate to long term, the developed world is in a new regime of increasingly interventionist central bank policies and high fiscal spending that is causing distortions in markets.