Since our inception, we have adhered to the same, time-tested investment strategy. It has guided us through periods of market volatility and allowed us to assist clients in achieving their long-term investing objectives.
Our investment management services are guided by a consistent, value-based investment ethos applied across a small number of key strategies.
We have found that there are opportunities for long-term outperformance thanks to price inefficiencies in the equities and fixed income markets. We achieve this by conducting thorough due diligence, carefully weighing the benefits and drawbacks of potential investments, and keeping a long-term perspective on our portfolio.
Our investment strategy is to generate good total returns regardless of the state of the economy or the market.
We have learned over many years of investment that investor sentiment can swing considerably, far more so than actual fundamentals. So, we think it's impossible to reliably forecast near-term price changes. Instead, we take a long-term view of our investments (three to five years) and behave like true owners of the companies and other issuers in our portfolios. In this way, we can maintain our attention on the things that we know to be most important for a company's success: franchise and financial health, competitive positioning, growth potential, management quality, and value.
The idea development and risk research for all of our investment strategies is powered by our team of Global Industrial and Fixed Income analysts. Because our experts examine the full capital structure of firms around the world, we are able to form an informed conclusion on credit and equity investments. For fixed-income assets like structured products and government-related securities, we use the same methodology. We feel our method is a significant point of differentiation and value addition for our clients, as it allows us to fully grasp the advantages and disadvantages of a certain investment.
Our investment strategy is predicated on strict adherence to pricing guidelines. We may have found a long-term opportunity when the market undervalues a firm or issuer because of its perceived difficulties or because of a failure to account for its potential for future growth. On the other hand, if a company's valuation exceeds its expected long-term profits, it may not be a good investment. The initial investment and initial yield on a fixed income investment are critical factors in determining the final return on the investment. We constantly assess current valuations in light of long-term fundamentals due to their significance for long-term performance.
Loss of principal and inflation of future purchasing power are the two biggest threats to investors, in our opinion. Assessing the potential negative outcomes of these and other risks requires us to calculate whether or not we will be sufficiently rewarded for them throughout the investment horizon. We strive to properly manage risk and assist our customers in meeting their long-term investment goals by increasing our familiarity with each holding and monitoring the portfolio's total risk exposures.
Our approach to active management combines deep fundamental research with team-based decision making. We make every decision together with Committees designed to spur debate and leverage the experience and various perspectives of its members.
Over many market ups and downs, changes in portfolio management, and several administrations, we have consistently pursued long-term investment opportunities. Yet, the fundamental tenets of value investing that inform our analysis have not and will not alter regardless of how we choose to implement our strategy.
Our companies are well-managed, so profits may be promptly reinvested. With the perspective of a long-term business owner, we plan to keep these companies for the foreseeable future. We pay less than what a frugal businessperson would pay for them. To minimize tunnel vision, we zero in on our most promising ideas. At every step, we work hard to conduct extensive primary research and make conclusions that are both well-considered and logical. Our investment philosophy is on the assumption that our portfolios will outperform the S&P 500 Index over the long run while exposing investors to lower levels of fundamental risk if we can purchase high-quality, fast-growing firms at reasonable prices.
To us, investing with an extremely long-term horizon is a way to go from the unknown into the familiar.
A stock's price will fluctuate throughout the year in response to market forces. Political conditions, investor confidence, and quarterly sales trends are just a few of the variables that might affect a stock's price.
As time progresses, a stock's price should accurately represent its underlying fundamentals. They, in turn, are influenced by the company's market standing, management skill, and potential for long-term earnings growth per share.
When it comes to the possibility of erroneously conclusive results, we are extremely cautious. When it comes to pricing, we don't set targets. In our experience, value is relative and can be difficult for even the most astute analyst to pin down. We also take the danger of reinvestment seriously. Excellent enterprises at good rates are hard to discover. We might have a hard time finding suitable replacements if we sold them off every time their worth increased. In addition, there is the possibility of incurring unanticipated costs. Trade and taxes impose real expenses with real repercussions, even if they’re not immediately visible in headline profits. Since we focus on the long term, it is business results, not value arbitrage, that determines our financial success. As such, we have a low inclination to trade.
As part of our investigation, we read company documents and analyze financial data. As a matter of pride and joy, we conduct in-depth, primary investigation about a company, similar to what an intrepid reporter may do. Although this process can be laborious and take months or even years, we've found that it frequently results in unexpected and invaluable discoveries, some of which can be captured in a spreadsheet but many of which cannot. Much of our time is devoted to this kind of in-depth primary research.
We look up to the exceptional businesses, those that carve out their own space in the market or control a specific subset of that industry, those that stand head and shoulders above their competitors. Excellent companies typically command a high price per share on the stock market. We wait for the infrequent times when they may be bought at a discount to their underlying values that includes a margin of safety, which we consider the single most essential idea in investing, and then we make the most of those opportunities. Our modest portfolio isn't representative of the S&P 500 or any other benchmark. In fact, more than 60% of our portfolio value is typically derived from our top ten holdings. While the S&P 500 may be useful for gauging our long-term success, it has no influence on the decisions we make when putting together individual portfolios.