Philosophy

Graham Hawes, CFA
Mar 18, 2024
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The market is highly efficient in the short term, but irrational human behavior occasionally creates attractive long-term investment opportunities in businesses with high barriers to entry and increasing returns to scale.

1. All Investing is Value Investing

  • Low multiple stocks are not always cheap, and high multiple stocks are not always expensive.

  • Boring, low-growth stocks can outperform the market, given proper capital allocation.

  • The present value of future free cash flow is the only way to value stocks; price multiples are shorthand for reverse discounted cash flows.

2. Time Arbitrage is Alive and Well

  • The market is competitive, with few informational or analytical edges remaining.

  • However, investors feel twice the pain from losses than pleasure from gains, which can dislocate stocks from their fair valuation.

  • The broader market will rise, provided a long enough time horizon.

3. Risk is Permanent Loss of Capital, Not Volatility

  • Market volatility is inevitable but can create long-term investment opportunities.

  • Diversification in high-quality businesses at fair prices reduces permanent loss of capital.

  • Permanent capital enhances long-term returns by taking short-term market volatility on the chin.