Everthing we do is about minimizing the downside risk. We try to look for a company with a wide moat that is sustainable for a long period of time. Generally, we take a long term approach to investing to compound money tax efficiently. We do not utilize screens to eliminate companies but we systematically research each and every company to separate high quality business from low quality ones. We don’t see investing as separate from investing in a business of our own. It is our belief that any individual decision can be badly thought through, and yet be successful, or exceedingly well thought through, but be unsuccessful. But over time, more thoughtful decision-making will lead to better overall results, and more thoughtful decision-making can be encouraged by evaluating decisions on how well they are made rather than on the outcome. We do not manage for stock price volatility or pressure ourself into coming up with a stock recommendation just because we spent time researching the company. It never pays to manufacture an opportunity but instead we like to wait patiently for opportunities to come to us and avoid borderline investment opportunities.

Our goal is to generate an inventory of ideas that can be deployed once stock price shows weakness. We do like to invest in higher percentages (5 to 20%) of the portfolio when we like certain investment. Additionally, a price fall is welcome, when an investment we like goes down in price so that we can buy more of it, if fundamentals haven’t changed. We don’t mind sitting in cash or government bonds if we don’t find any suitable investment opportunities. The reason we like to be concentrated is because there are not going to be enough business that have honest & competent management, favorable long-term industry characteristics, efficiently run, consistently profitable, high barriers to entry, pricing power, low capital expenditure needs, liked, needed and respected by loyal customers, feared by competitors and selling for right price. We also want to make fewer decisions so that it forces us to think more on each decision, allows us to maintain high selection criterion and thereby reduce our chances of mistakes. Broad diversification is viewed upon as a hedge against not understanding what we own and we want to understand companies that we own intimately.

We do not time market or try to predict where the market is heading next or adjust our criterion for bull or bear markets. From time to time, we might get into opportunistic buys but allocation to those opportunities will be small. We also want to minimize transaction costs.

We like to invest in the mid-cap and small-cap sector because we believe that we have higher chances of finding price anomalies in small to medium size companies. Companies in this sector space are still emerging and not big enough for big fund managers and therefore are likely to be ignored by big fund managers and analysts. It is also somewhat easy to value these companies since they are not broadly diversified conglomerates.

Our portfolio is going to be more volatile as fewer holdings will have disproportionate impact on the fund. It can very well happen that a holding that we identify as value is in fact a value trap and the stock price stagnates for a long period of time. We also have little room for error since we can’t diversify away our holdings.

One needs only a handful of investments to compound money tax efficiently. We are sector and benchmark agnostic and focus on absolute returns. We believe that a disciplined research process coupled with the margin of safety concept goes a long way towards building sustainable wealth.