Principles of Investing

This statement will establish: 
  1. reasonable 
  2. expectations, 
  3. objectives, 
  4. and guidelines in the investment of the Portfolio's assets.

Set forth an investment structure detailing permitted asset classes, normal allocations and permissible ranges of exposure for our investment Portfolio.

this statement sets forth the framework for a well diversified asset mix that can be expected to generate acceptable long term returns at a level of risk suitable to the investor. 

 The Statement has been developed from an evaluation of many key factors which impacts our us in specific situation and investment objectives. This Statement is not a contract. It is intended to be a summary of an investment philosophy that provides guidance for our investment decisions.

Principle 1: 

Our goal is to grow our net worth on a per share basis for our members. 

 Our preference is to adopt the methodology of Warren Buffett, and Charlie Munger, of Berkshire Hathaway fame. In that we want to build our net worth by buying and/or building great operating businesses that generate free cash flow and above average earnings. Our second focus is to buy pieces of similar businesses attained by ‘mostly’ purchasing of common stocks. 

 We believe that if we follow this business model we will grow our wealth.

 Principle 2: 

The prevention of permanently losing capital.

 Losing capital is our biggest fear, that's why we employ a number of methods to insure that we don't permanently loss principal: 

 Margin of Safety: 


 Price is what you pay; value is what you get  Warren Buffett. 


 We focus on buying assets for cheap. The cheaper the price relative to its estimated value the higher the margin of safety. Picture it like this, if you wanted to buy say a designer rug, would you A) pay the premium for it or B) would you be shop around and make sure you find the cheapest price for this designer rug?

 If you pay $7,500 for a magic rug that is worth $5,500, how much can you hope to make from it?  Now take that same rug but this time you pay no more than $3,200. how much can you make off of it now? Better yet instead of selling it we start charging $100 for people to use its powers, so we can keep it indefinitely!

 In all of our purchases we insist on a margin of safety of at least 30% relative to estimated value.

 A great business can become a bad investment if you pay too much for it.

 Diversification:

No matter how high or margin of safety, there is still  a chance that our asset(s) will fall flat on their faces and if that were to happen and if we had all of our eggs in one basket we would be in for a deep swim. That's why we also include a method of diversification for our business management system. 

 No matter the margin of safety or how sure we are of the asset we are not going to allow our business to have more than 15% of total capital in one ‘idea’ 

Principle 3: 

We treat our investments as we would our fully owned businesses. 

When we view our investments, we measure their success by the cash we can take from operations without affecting the business’ ability to run ( dividends). To accomplish this, we only focus on the business financial statements, and buying or selling based on our own personal conclusions. We don’t follow the trends of the market, instead we focus on the cash generated that we can extract to fund more investments.   

Principle 4: 

Focus on buying businesses that sell below intrinsic value.

The actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value.  

 The process to find a company’s intrinsic value can be a complicated mess, which is why we focus on a few simple methods to generate a rough estimate of value. 

 Principle 5: 

We buy for the long term

No matter the how well the business may be performing in the short to medium to long term,  we have no intention of selling good businesses,  we also have no intention of selling sub par businesses as long as they are generating acceptable cash. 

 Principle 6:  

The single most crucial factor in trading is developing the appropriate reaction to price fluctuations. 

“The single most crucial factor in trading is developing the appropriate reaction to price fluctuations. In our view, investors should usually refrain from purchasing a ‘full position’ (the maximum dollar commitment they intend to make) in a given security all at once. Those who fail to heed this advice may be compelled to watch a subsequent price decline helplessly, with no buying power in reserve. Buying a partial position leaves reserves that permit investors to ‘average down,’ lowering their average cost per share, if prices decline.” Seth Klarman

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