Unconventional Investment Philosophy
Investing is often confused with speculating, gambling and trading. However, true investing is neither speculation, gambling or trading. Contrary to popular belief, investing involves low risk of losing capital when done properly. Investing involves a long-term horizon coupled with a business like approach. An understanding of the company or asset being purchased, how the business or asset is performing economically and an appropriate value to buy are of utmost importance to a business owner. A business or asset with long-term sustainable business performance is rare. So, when such a company is trading below a conservative approximate valuation, an investor must be able to think rationally and act on the opportunity. Approaching investments with patience, discipline and conviction is easier said than done but offers the greatest long-term returns.
At Unconventional Capital Wisdom, LLC, we are passionate about all facets of investing whether it be searching for opportunities, analyzing companies or waiting patiently as a passive owner. We take a long-term business like approach while utilizing our understanding of human psychology, and its limitations, to help our clients achieve exceptional investment results. We understand human behavior and the human mind are programmed for surviving in the wilderness. Humans have trouble investing for the long-term in a market where prices are updated every second. Fear, greed and mental shortcuts normally serve an important purpose but when applied to investing cause people to lose money. To combat our innate human instincts and invest successfully over the long-run, we think it is necessary to think unconventionally.
Why Focus on Small Cap Companies?
Competition is less fierce. Money managers have a profit incentive to manage ever larger amounts of capital. More capital means they have to move up to mid cap and large cap companies, otherwise they would have to invest in too many small cap companies and risk getting the average results of all small cap companies.
There is very little analyst coverage on smaller companies leading to market inefficiencies. We do our own thorough due diligence and specifically focus on the quality of the business as well as the management team. Qualitative factors of a business and management are much more difficult to calculate then quantitative factors further leading to mispriced small companies.
“If the business earns six percent on capital over forty years and you hold it for that forty years, you’re not going to make much different than a six percent return – even if you originally buy it at a huge discount. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you’ll end up with one hell of a result.”Charlie Munger