Risk Management Through Diversification
By taking a position in a company, we attempt to gain the benefits of positive changes within its industry as a whole, as well as developments specific to that firm. Through this strategy, we are able to increase the likelihood of good returns in most market climates. Our objective is to ensure that portfolios are neither concentrated nor index-like, but always well-diversified. We endeavor to invest in industries that together represent
about half of the S&P 500's market value.
Building Long-Term Portfolios
We approach portfolios as investors, not traders, making purchases with the intent of holding
these stocks for at least three years -- a time period long enough to achieve improved return on capital/equity or better market valuation. We typically hold 35 to 55 stocks.
A Well-Defined Sell Discipline
When we purchase a stock, we establish a total return target for the holding period. We anticipate that the total expected return should clearly exceed the long-term return of the overall market. We monitor company progress
toward the target after purchase, and usually sell after achieving the desired return. However, other factors may prompt a reexamination of our strategy and an earlier or later sale based on a different total return target. Some reasons include:
- Improvement or deterioration of the investment case,
- Major changes to business structure or earning power,
- Better diversification from an
alternative holding.
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