104 Tynte St, North Adelaide, SA 5006, Australia
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If you are not already acquainted with it, our guidebook is important reading and can be obtained by sending an email to email@example.com. Whilst little service to reading the guidebook in full, by skipping to chapter 11 our principles of technique are described, which are likened to our heart, lungs and brain - each organ having no value on its own. The function of the three organs, in service to our investment approach, can be summarised as:
- Steadfastness: The security under consideration must have the earnings predictable for 20 years and with no foreseeable chance of economic deterioration for 40 years - an approach that leaves us with very few candidates. We like omitting. Despite the stringency of this test, this first organ is essential in order for both the second and third organs to really blossom.
- Value relative only to the tenth year: The per-share intrinsic value (plus returned dividends) as observed by market participants 10 years into the future, greatly exceeding today's price. We pay almost no attention to the price discount to the presently observed intrinsic value. This is at odds with most of the investment community, but we like it that way, and we think yields better results.
- Concentration and capital allocation common-sense: To hold relatively few positions, typically around five positions only, and rarely more than seven. We are business owners, and would quite happily own one security for many years. Given that we have paid great attention to steadfastness, we are not concerned with the fewer positions increasing risk - on the contrary, we perceive the risk as having decreased with our greater selectivity, discarding situations that we either don't understand or which are inherently unpredictable. Positions in securities are sold in full (or in a substantial quantity) rather than in meagre quantities, when step 2 indicates their relative unattractiveness. Our strong attention to capital allocation is also directed towards how individual situations can re-invest their own newly produced capital at high rates (internally to withhold the same competitive advantage) because we are chiefly interested into how the investments evolve over time, in contrast to just the price discount to presently observed value.
— Scots Cliff Investments