Our core Opportunity Strategy is concentrated and value-based, aiming for aggressive capital appreciation and superior long-term returns, with low risk of permanent capital loss.

The Opportunity Strategy is primarily focused on (but not limited to) U.S. equities. Opportunity Strategy securities are chosen for unique, above-market upside potential, then sized according to downside risk.

Our goal is to emulate success of active managers such as those outlined in Warren Buffett’s essay, “The SuperInvestors of Graham-and-Doddsville.” Our goal is to generate high returns normally associated with private equity or venture capital, but with lower fees, increased liquidity, and, we believe, less risk.

A form of the strategy is available in separately-managed accounts.

What is an “Opportunity”?

We eschew traditional labels of “growth” or “value” investing. We believe all sound investing is value investing, in that the aim is to purchase securities far below what they’re ultimately worth. Nevertheless, growth potential is an important factor in determining fundamental value.

Rather, we seek opportunities, which occur when our estimate of intrinsic value diverges significantly from current market prices. In essence, we look for securities that are severely underrated, whether a young, high-growth disruptor or a turnaround of a mature businesses. We then aim to exercise patience as price and value converge over time.

We believe, and have found, that market mis-pricings continue to occur for the patient and curious investor due to the human element inherent in markets.

Special Companies, Special Situations

In our experience, “Opportunities,” are more likely to take place both among the highest-quality securities (“Special Companies”), or securities with high pessimism and/or unique circumstances surrounding them (“Special Situations”).

Special Companies: usually have:

unique and sustainable competitive advantages, in combination with
a long growth runway/ addressable market
in an industry with favorable long-term prospects
exceptional, proven management

Special companies have the potential to compound above-market returns for many years and make multiples of current prices.

Special Situations: occur when a security trades at a very low valuation due to unique company, industry, or market circumstances, which may include:

negative one-off events
a (mis) perceived threat
transformative mergers or spinoffs
turnarounds (often with management or strategy changes)
financial engineering (buybacks, recapitalizations)
market anomalies (short attacks, index inclusions, other upcoming catalysts)

In rare cases, a Special Company will find itself in a Special Situation. In these cases, we will intensify our research, and, where we can attain high conviction, may take an aggressive position up to 25% of the portfolio (at cost).

Positions that large are likely to be rare, and usually deliberately built over months, quarters, or even years, as as we continue due diligence and gain conviction. See Risk Management for more details.

While “special companies” and “special situations” sound like distinct categories, portfolio securities usually possess elements of both. Thus, we are unlikely buy very low-quality companies no matter how “cheap,” or even the highest-quality company if it is too expensive.

Margin of Safety

All candidates for the portfolio — whether special companies or special situations — are run through our quantitative valuation process based on future cash flows, and purchased only when trading at a significant discount, or “margin of safety” to our conservatively-estimated base-case scenario.

Sources of Outperformance

We believe a concentrated portfolio of unique investment opportunities, properly executed, should outperform indices over the long-term, due to:

Concentration (between 5 and 25 securities)
High “active share” (looking different from the index)
Time arbitrage (taking a long-term view , in contrast peers’ quarter-to-quarter, high-turnover posture)
Flexibility (see Risk Managment for more details)