Our first mandate, is to avoid losing capital. This comes before everything else, we are not in this game to lose money. Our greatest emphasis is on protecting capital, avoiding losses.
Our main aim is to do the least amount of work, for the largest return, at the lowest risk levels possible.
Does this mean we look to do little work? No, what it means, is we concentrate on what is important. We do not get bogged down by all the ‘noise’ that is involved in the daily reporting of the stock markets. We are interested in forming our own opinion, using data sourced freely from the many on-line resources. We work incredibly hard on what we can control, what we understand – we do not waste time on trying to understand the un-knowable.
We seek to maximise opportunities, we look to do this through identifying where these are most likely to occur and by putting ourselves in a position in which we can take advantage.
We understand that the market controls us, we cannot predict what will happen in the next 6-12 months with any certainty, we can only place ourselves in the best possible position in which to earn money if we are right and reduce losses when we are wrong. As Keynes famously put it, ‘markets can remain irrational, longer than you can remain solvent’.
When we are right, we look to profit whilst taking risk/reward positions that are in our favour. When we are wrong, which will often be the case – we will look to protect capital at all costs.
To borrow a sports metaphor, brought to our attention by Howard Marks, the story of golfer Tom Kite, from the Wall Street Journal in 1992, shortly after having won his first major;
The bespectacled 42-year-old had won … over the past 20 seasons some $7.2 million in official prize money, more than any other golfer — ever. But [he had never before won] one of the sport’s “majors” (the U.S. and British Opens, Masters and PGA Championship).
This is how we view performance in the markets, by consistently finishing ‘in the money’ year on year. We are looking for good long-term performance, again to borrow a sports metaphor – a consistent top-half Premier League side if you will, we wish to avoid ‘doing a Leeds’ – two seasons of ‘outstanding’ performance followed by near bankruptcy and many years of mediocrity.
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Sunday, February 26, 2017 7:00 PM