Note: Units of our funds are only available to Canadian residents who qualify for exemptions from applicable registration and prospectus requirements.
Both funds invest in the same fashion. The portfolios do however differ partially due to investment restrictions and partially due to size. Nevertheless the basic Investment Philosophy is the same and as follows:
Investment Philosophy
"The margin of safety is always dependent on the price paid. It will be large at one price, small at some higher price, non-existent at some still higher price."
Ben Graham, The Intelligent Investor
In a nutshell, our investment philosophy is "to make all the money on the purchase". As an investor, we believe one of the few things we can control is the price we are willing to pay. Therefore, when we are selecting investments, we focus on what we are getting and at what price we are prepared to act. Our intention is to invest only where the difference between the value of the investment and the price we pay gives us a margin of safety.
The factors we consider in assessing investments include:
- the difference between the "intrinsic value" and the market price of the investment;
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the business risks associated with the investment; and
- incentives that align management's and shareholders' interests.
Discount to intrinsic value
Our goal is to invest in securities that we believe are priced at a discount to their intrinsic value. In contrast to the market price of an investment, we see the intrinsic value of an investment as the price that we would expect a rational buyer to pay,
the economic value of tangible and intangible net assets, or the amount an investor would receive if the assets were liquidated in an orderly fashion. In our view, a rational buyer is one who focuses factors such as the time value of money and underlying values, and disregards promises of synergy and relative value.
Business risks
We focus more on the potential for volatility in the intrinsic value of an investment than volatility in the market price. In assessing the potential for volatility in net asset value, we focus on business risks associated with an investment, including the structure of the industry, the company's position within its industry, the company's capital structure and the company's operating cash flows.
Management incentives
We believe that if the discount to intrinsic value is sufficient, we need to be less concerned over management issues. However, we do look for incentives that align management's interests with those of shareholders. In particular, we focus on share ownership, the activities of insiders, the board's objectives and compensation programs.
In summary, it is my intention to:
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Invest only when there is a substantial margin of safety present.
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Not be concerned over volatility in the stock price, only in the net asset value.
- Follow the insight of a poster I once saw: "sometimes me sits and thinks and sometimes me just sits" (meaning that sometimes doing little is a virtue).
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