Success in investing requires a philosophy and a process.  My philosophy has  been developed over the last 20 years and has most been influenced by great investors like Bill Ackman, Monish Pabrai, Chuck Akre and Warren Buffett.  I am not an advocate in modern portfolio theory which is most commonly practiced by developing an asset allocation model of different asset classes and using indexes as investment vehicles.  This strategy often results in investors owning hundreds if not thousands of individual investments allocated  across different asset categories that they know nothing about.  This misguided strategy is not necessary for diversification and creates at least two detrimental impacts for investors. 

 

First, because investors use indexes that are often comprised of the entire market they tend to focus on these markets which are inherently unpredictable.   This is a recipe for decisions that are not based on fundamentals but on the whims of their emotions and the prognostications of self proclaimed market experts which  leads to to poor decisions and poor investment results.   

 

Secondly, Modern Portfolio theory ignores the fact that when an investor makes an investment he or she is buying a business and not all businesses are created equal.  Most investors would be better off owning 10 great businesses rather than 1,000 mediocre ones. 

 

In my experience, focusing on the fundamental business characteristics of an investment increases the probability of selecting the best investments possible in terms of safety and potential for return.   Knowing and understanding what you own and why you own it also allows you to make fundamentally rational long term decisions when market conditions are volatile.  

 

I have also found that patience and holding these investments over a long period of time as long as the fundamentals of the business are in tact is a wise and fruitful strategy.  Patience is in short supply in our world.  The average active investment manager only holds an investment about six months before selling and buying something different.  This makes about as much sense as planting a tree and then digging it up six months latter to plant it somewhere else so it will grow better.   

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Therefore, I follow a philosophy of knowing and understanding the investments that I own, and having every intention of holding for a long period of time unless business fundamentals change.  

 

My philosophy is not a fit for everyone but for those who are like minded and have patience. This strategy that has been proven over time to be successful by some of the greatest investors in history.    I pursue this philosophy by following the process outlined below.