It’s a matter of perspective. Real increases in wealth can only be earned consistently when investors view the investing process as one of buying pieces of companies at a price that’s attractive compared to their intrinsic worth, and holding these investments at least until their value is recognized in the markets.
Lionridge refers to this process as fundamental value investing — this is the difference between investing and speculating.
Other investment approaches involve trying to pick stocks that will go up in price in the short to mid term for a variety of reasons which may not be related to the fundamental value of the underlying companies.
Protecting your Capital.
By the combination of i) buying shares of companies at attractive prices; ii) limiting investments to companies which are fundamentally sound and run by competent people who act in the interests of shareholders; iii) having the discipline to hold investments despite short term volatility in market prices; and iv) limiting the number of investments so that all holdings can be monitored individually and thoroughly, Lionridge strives to achieve a fundamental objective; protecting investors’ capital from permanent losses.
Fundamental investing involves doing extensive research on potential and existing holdings: digging into financial statements in detail, examining companies’ competitive positions and business dynamics, assessing the quality of management, asking the tough questions and looking past reported earnings to get a conservative estimate of actual cash flows (there can be a significant difference).
What also sets Lionridge apart from most investors is a strong investment discipline. This includes the discipline to buy shares of companies at only what is viewed as the right price and the patience to hold good investments at least until the markets are willing to recognize their true value. Crucial to this is the discipline of avoiding the market noise and hype that plays upon the psychological triggers of fear and greed and can cause investors to make irrational investment decisions. Recognizing these forces which are always at play, Lionridge follows the discipline of acting against the crowd and can thereby take advantage of the psychological factors which affect the markets instead of falling prey to them.
The Lionridge approach is only suitable for investors who understand the distinctions of the Lionridge investment perspective, are willing and able to invest for the long term, and have the discipline to ignore short term market volatility. For these people Lionridge will rise above the noise, ignore the crowds and act independently from a position of strength and knowledge.
Investors can enjoy the benefits of diversification but can also pay an unnecessarily high cost for it. An appropriate amount of diversification is always crucial, as one should never put all of their eggs in one basket. However, it is Lionridge’s view that most equity funds are over diversified, holding up to 100 stocks or more in a single country mandate. The contributions of the outstanding investments in such a portfolio are diluted by the presence of companies which can be mediocre, badly managed or overpriced.
In Lionridge’s view, the best way to build significant wealth over the long term is to concentrate on a small number of strong investments. The number of stocks held in Lionridge’s Total Equity Portfolio is limited to approximately 25 to 35, and less in our global equity portfolio. The level of short-term volatility in a portfolio of this size is not materially greater than that for a portfolio holding 100 stocks or more, and longer term risk is further mitigated in that the manager of the portfolio can know the companies to a level of detail that a manager holding a much larger number of stocks can not.
Margin of Safety
For successful investing, it is not enough to take the time to identify and focus on companies that are fundamentally sound. A vital element to achieving outstanding returns in the long run is having the discipline to avoid investing in companies until their shares are available at a price that compares favourably to their intrinsic value. Just as importantly, buying at a discount provides a “margin of safety” to investors to account for unforeseen problems with the company or the industry it operates in, or lower company performance than originally forecasted.
Grow Your Capital, Protect Your Capital
Your lifestyle and your legacy are dependent on how well your money is managed. Lionridge strives to help clients achieve peace of mind.