Philosophy

Being patient

In our experience, value investing is often similar to watching paint dry. Identifying a great company with a great capital allocator at the helm takes time. Waiting for the moment the company is temporarily disliked or misunderstood even more so. And after buying a stock, it takes time for the market to change course and see the stock you chose in a new light. Yet, time and time again we notice that patience leads to truly outsized results. In such a way that we made our ability to assume and maintain patience a core value. When we make a decision, we tend to go in big. After that, we define our role very much along the lines of trying to enjoy sitting on our hands. As a result, if we can find one or two investments a year, we consider ourselves successful. 

We are reluctant sellers

Value investing is relentless for the patient investor over long periods of time. An example we like to use is Anne Schreiber, an IRS auditor, who started in 1944 with USD 5,000 in savings and ended, 60 years later, with wealth totaling USD 22 mln. She focused on companies with leading brands that could grow earnings over time, focusing on solid companies, with good balance sheets and strong reputations. Her success came because of her outright refusal to ever sell any stock and through reinvestment of her dividends, which amounted to USD 750,000 a year by the end of her lifetime.

The power of compounding

An example we hold up in the real estate sphere is the Astor family. Studying their history shows that it was patience that gave staying power to the Astor real estate fortune: they were very reluctant sellers. Once they got hold of a good thing, they held on and allowed the power of compounding to do its work. It was largely a refusal to sell that allowed their wealth to multiply to such extraordinary heights.

Investing in equities like real estate

We invest both in real estate and public equities. Both share many similarities. The key to both is to find prime companies/locations with good returns/tenants, buy them at attractive prices and hold them for a very long time.

The role of capital allocation

What sets them apart, however, is the role of management. With real estate, enduring success is to a large extent outside management's control. Success depends greatly on location and location development of both neighborhood and the city around it. With equities, however, management has a much larger role to play. With a company that retains ten percent of its earnings a CEO will make - over the course of a decade - financial decisions on 60% of total capital at work, via expansion, acquisitions, stock buybacks or dividends. This gives management an outsized influence of the direction a company can take. Yet, most company CEO’s have little actual experience in capital allocation. Therefore, evaluating the alchemist of a company is, to us, one of the most important activities an investor can undertake.

Finding good capital allocators and stick with them

We have learned early on how truly valuable – and rare – it is to find skilled and creative management teams that have a clear and rational approach to capital allocation. The quality of reinvestment is the single most critical ingredient in a successful investment idea. Evaluating the alchemist of a company is therefore, to us, one of the most important activities an investor can undertake. And sticking with them a source of huge pay-offs.