Opportunities arise when market prices deviate from intrinsic value

All investments represent a set of future cash flows, which can be valued with reasonable accuracy. The progression of this intrinsic value is fairly stable through time. Investment market prices, however, vary considerably over time - most often due to self-reinforcing cycles of enthusiasm or negativity. These mispricing cycles often result from an excessive focus on near-term data and news flow.

The patient, skilled investor will benefit from buying investments at prices well below intrinsic value and holding them while they deliver strong cash returns and until they can be sold at above intrinsic value. Once sold, such overvalued investments should be avoided with discipline for as long as the market price is above the intrinsic value.

The future is never certain

There is considerable danger in operating with the comfort of a false sense of certainty and the accompanying behavioral reinforcement cycles that lead to a distorted evaluation of new information.

Recognition that one's view may be incorrect, and that one cannot know all the facts, drives one to think more deeply, to work harder and to be more alert. The future should be viewed in terms of probabilities, alternative scenarios should be explored, risk should be diversified and hedged and potential asymmetries should be sought.

While we cannot control our results, we can, and must, control our investment process if we are to succeed. We follow a 'bottom-up' process to exploit our investment philosophy in a disciplined, yet flexible manner - enabling creative and rigorous thinking.

Original research in pursuit of attractive investment opportunities

Most of our time is spent undertaking in-depth company, industry and individual security research. We aim to produce an accurate assessment of the relative merits of a particular investment and to identify the key drivers of its future cash flows. This then forms the basis for detailed financial modelling and the calculation of its intrinsic value.

We analyse relevant information to identify the sustainable, 'normalised' economics and cash flow generation potential of the investment. We attempt to understand structural and cyclical forces in operation, to adjust for temporary distortions to cash flows and to conduct analysis with the perspective of the long-term history of the business and industry.

We pay particular attention to how our valuations could be wrong - delivering a probability band around our central intrinsic value estimate.

Portfolio management that optimises client outcomes

We believe that individual accountability of portfolio managers for specific client mandates leads to better decisions. Our portfolio managers construct well-diversified portfolios, based on the investment opportunities uncovered by our proprietary research and analysis. They maintain a patient, long-term outlook, constructing portfolios that balance expected returns from mispricings, perceived risks, and available portfolio holding size. They pay careful attention to risk management - minimising 'unrewarded' risks and positioning for asymmetric potential results.