We believe investing is a probabilistic process where no single good or bad outcome can testify to the validity of the process. We strive to execute our investment process with the utmost due diligence while learning and adapting to market realities. Our investment process is divided into five categories:

• Research Process
• Decision Making Process
• Buy/Sell Criteria
• Risk Management
• Trading Strategy

Research Process

We conduct research in-house supplemented by outside reports to ensure a full understanding of the global financial markets. We start by understanding the secular trends (globalization, wage deflation, baby boomers, etc) and the business cycles around the world by constructing and monitoring our Risk Index. The Risk Index allows us to compare different markets in a uniform manner by reducing investment risk to three components: valuation, liquidity, and technical. Finally, we look for individual securities that offer the greatest opportunity to outperform the benchmark.

In addition, we source our ideas from publications, conferences, quantitative screens, competitors, industry contacts and events, and field research. The research team prepares a preliminary report supporting their thesis; the report is discussed and new questions are raised. The answers to these questions are gained through additional research and interviews conducted with corporate managers.

Decision Making Process

We decide to buy or sell a security as a team. The decision requires a unanimous consensus with each view being fully represented and debated. This ensures that all ideas are considered, but only the best are executed. Our Portfolio managers are also expected to perform research duties helping to remove the discontinuity between management and research found at other firms.

Buy/Sell Criteria

We buy a security when the Risk Index (valuation, liquidity, technical) associated with that security rises to attractive levels. As part of our due diligence, we look for investment opportunities in well-managed firms that offer a compelling value proposition for their customers and sustainable competitive advantages. Our preferred valuation measure is a firm's ability to generate free cash flow. We view corporate managers as partners, and as such, we work with them to understand the time frame in which the investment catalyst may materialize.

We sell a security when the Risk Index (valuation, liquidity, technical) associated with that security falls to unattractive levels. We will reevaluate a position if a change in business strategy or business decisions threatens shareholder value. Our shorting strategy is limited to finding "terminal shorts" or situations where a 50% move is realistic.

Risk Management

We limit our holdings to the very best ideas. These positions are continuously monitored for new developments and are rebalanced and hedged to match the benchmark. At times, market conditions may call for an overall hedged position, for either single securities or the overall portfolio to limit volatility. We manage the risk of short selling by using derivatives or other economically offsetting transactions.

Trading Strategy

We enter and exit positions by scaling in and out to minimize the effect on market prices. We see trading costs as an inevitability that diminishes from manager performance and shareholder returns. To reduce these costs, we keep portfolio turnover to a minimum.