Value Investing

"Price is what you pay; value is what you get." – Ben Graham

Investment Philosophy

We are Value Investors, investing in stocks selling at significant discounts to our conservative estimates of their intrinsic value.

Tenets of our Investment Philosophy

Intrinsic Value

Intrinsic Value

Each asset has its own intrinsic value, determined by all future cash flows it generates. In the case of companies, buying stocks represents buying a portion of the companies' future cash flows. Determining a conservative, yet reasonable, estimate of intrinsic value demands a deep understanding of the business, its fundamentals and its future prospects.

Margin of Safety

Margin of Safety

The difference between the market price of an asset and what we believe to be the asset's intrinsic value. A margin of safety is necessary to minimize the risk of capital loss due to errors in our analysis or from unforeseen events. Thus, a larger margin of safety results in less investment risk.

Capital Preservation

Capital Preservation

We view risk as the probability of a permanent loss of capital. We believe that the best protection against this risk is a deep understanding of the companies we invest in, the utilization of an adequate level of margin of safety, and a portfolio composed of diversified risks.

Probabilistic Mindset

Probabilistic Mindset

Investing involves numerous unknowns. A probabilistic mindset permeates the entire investment process, including the estimation of intrinsic value, risk evaluation, and portfolio formation. We seek to invest in opportunities which present asymmetric risk-return profiles and favoring those with low chances of loss. The formation of a portfolio with diversified risks results in a global risk-return profile superior to the risk-return profile of each individual investment.

Long-Term Horizon

Long-Term Horizon

We invest in companies, not securities. While the convergence of market price to intrinsic value may accelerate investment returns, our investment decision does not take into consideration market timing nor depends on price convergence. We always need to invest with the comfort of being long-term shareholders of the business.

Our Investment Philosophy Approach

The successful application of the Value Investing philosophy depends on processes, which encompass 13 years of consistency and constant improvements.

Independent, Diligent, and Continuous Analysis

Independent, Diligent, and Continuous Analysis

Our investment analysis process is performed as a team in order to ensure the refinement of our understanding of the investment through debate and questioning of all assumptions. The analysis of invested companies is a never-ending process, which demands constant monitoring of the companies and the business environment and macroeconomic contexts in which they operate. All of the companies in our coverage universe have their valuation models updated at least weekly and with a regular in-depth review of the investment thesis and its associated risks.In pursuit of the best risk-return ratios and greater margins of safety, we may make investments in out-of-consensus stocks and deviate from the main market benchmarks. We are confident in the results of our work and feel comfortable having opinions contrary to the market.

Focus on Circle of Competence

Focus on Circle of Competence

We understand that our core competence is evaluating businesses. Our investments are strictly based on the valuations of companies whose business we understand and where we are able to reasonably and conservatively estimate future cash flows. Externalities such as macro variables, political and regulatory environments, among others, are considered risk factors to the extent that they can affect the business, but, due to their particular uncertainty, they are not sufficient elements for investment decisions.

Diversification and Proprietary Risk System

Diversification and Proprietary Risk System

We utilize a proprietary risk system which transforms quantitative data and qualitative characteristics of the analyzed companies into risk scores. The level of risk determines the minimum margin of safety required to invest in the company. In addition, the risk score, in conjunction with the calculated margin of safety, determines the relative sizing of each stock in the portfolio.
We construct a focused portfolio with a sufficient quantity of investments in order to diversify risks, without neglecting the need to have a deep understanding and constant monitoring of the invested companies. We understand that an excessive quantity of investment positions increases the probability of capital loss if the positions do not present an adequate level of margin of safety.

Consistency through Processes and Discipline

Consistency through Processes and Discipline

We believe that robust processes, and a disciplined team to implement them, are necessary to mitigate the risks of our own behavioral biases and to prevent human errors, and, thus, are fundamental for consistent excellence. Structured processes enable the creation of objectives, the measuring of results, and the standardization of excellence. Our processes are constantly improving in order to eliminate inefficiency, prevent errors, reduce risks, and maximize returns.

Dynamic Optimization of the Portfolio

Dynamic Optimization of the Portfolio

We actively and dynamically manage the fund portfolio, adjusting position sizing in accordance with their margin of safety and risk levels. The financial markets are volatile and cyclical. We seek to take advantage of these characteristics to generate value for our clients, altering our allocation to each investment as a result of changing prices in order to continually maximize the risk-return profile of the portfolio.