Our Investment Philosophy
Our primary goal is preservation of capital (avoiding permanent loss of capital). If you are looking for a home-run hitter, we are not it. We focus on downside protection and a margin of safety. The best way to preserve and grow capital over a long period of time, in our opinion, is to avoid large catastrophic losses. We are focused on tax-efficient growth, but compounding is interrupted and derailed by large setbacks. The "secret sauce" of wealth creation is tax-deferred compounding.
Investment return is determined by two variables:
Asset Allocation & Security Selection
I. Asset Allocation: In the “complex” world of investing, there are simply only five options when deciding how to allocate your capital (not including spending it, of course!):
Own businesses: public equity or private equity
Own real estate: commercial, residential, agricultural
Own fixed income: municipal, corporate, governments
Own commodities: gold, silver, oil
Own currencies: US dollars, euros, pounds
We prefer business investments, real estate, and fixed income as these assets produce cash flow, the central ingredient to valuation. We do not invest in commodities or currencies as they do not produce cash flow and have offered lackluster, long-term returns. In fact, the US dollar has depreciated 95% since 1913. We will, however, hold cash when asset prices are high.
II. Security selection: We follow a disciplined, patient approach to security selection. We use individual stocks and individual bonds for most portfolios. We may also invest in equity or fixed income mutual funds and index funds.