In the Manager’s view, superior investing must be viewed in terms of risk adjusted returns.
“It is not simply about the return you generate, it is about the risk you took to make that return.” – VGI Partners Investment Team
The Manager takes this risk adjusted return philosophy, and implements that through three key tenets of capital preservation, superior long term compound growth and concentration. These key tenets can be summarised as follows:
(a) Capital preservation – The Manager believes that risk comes from not properly understanding your investments and places a great deal of importance on assessing downside risk. The Manager attempts to know as much about its investments as it can and believes that this knowledge is key in guarding against permanent loss of capital.
(b) Superior long term compound growth – The Manager believes that great businesses purchased with a sufficient ‘margin of safety’ held for the long term are best placed to provide superior long term returns. The Manager believes that if a business performs well, the stock price will eventually follow. Accordingly, the Manager aims to invest long term in a relatively small number of business that it considers to be undervalued but that exhibit superior economic characteristics. The Manager believes that a ‘buy and hold’ strategy can promote compound growth as it minimises frictional costs (such as commissions, fees and taxes) and allows time for business performance to be translated into stock performance.
(c) Concentration – The Manager believes that diversification preserves wealth, while concentration builds wealth. Accordingly, the Manager aims to invest in a relatively small number of high quality Long Positions. The Manager aims to be concentrated enough in its best ideas (i.e. the core Long Positions) so as not to dilute overall returns but hold enough Long Positions in order to provide an appropriate level of diversification.
The Manager invests on a global basis, seeking out what it considers to be the best investment opportunities in any country with a legal system with which it feels comfortable. This is complemented with opportunistic short selling of low quality businesses that are typically considered by the Manager to be structurally challenged, poorly managed and materially overvalued. The Manager’s philosophy is to employ a ‘buy and hold’ strategy for Long Positions and to generate long term compound returns.
The Manager believes that long term business success is achieved through operating where you have a competitive advantage and that in the business of investing, competitive advantage is obtained through superior knowledge and analysis. The Manager also believes that a long term investment horizon provides a competitive advantage in an investment world which is increasingly focused on the short term.