How We Invest

MAINTAINING PORTFOLIOS

We continuously update the scenario forecast model and each stock model to reflect new developments.

Buy Discipline

• The maximum position we will buy in any stock is 5% of a total portfolio.
• Only the largest companies in the world qualify to have a maximum position. Smaller companies would support progressively smaller position sizes.
• A company’s trading liquidity, “quality,” sustainability, diversity and the degree of confidence we have in our estimates and forecasts are also factors in determining position size.

Sell Discipline

• Sell when the minimum intermediate return has become less than or equal to a comparable maturity US Agency bond.
• Sell when the 12-month scenario analysis leads to a target portfolio with a change in sector, regional or equity exposure.
• Sell if developments lead to a lower projected return in our analysis of the company.

All parts of our investment process integrate both different decision making disciplines and also all of the differently focused investment staff.

All of our professional investment staff participate and vote in all of our investment meetings whether about the macro-economic assumptions in a scenario forecast, the composition of a target portfolio or the price at which to buy or sell a particular stock.

---

Our investment strategy is based on the philosophy that the best way to “beat the market” is to be safely protected when it goes down, not dangerously exposed when it goes up.

This means always thinking about the unlikely and unpleasant things that might happen rather than the most likely or most hoped for pleasant outcome. A diversified portfolio that takes account of all possibilities is like a household that is always paying a fire insurance premium (this is only a metaphor; we do not offer true insurance). Most years the premium reduces income; but when misfortune strikes the insurance provides protection. Misfortune strikes the stock market far more often than fire strikes houses.