Portfolio Management:

Portfolio Management:

We take a very different approach to money managing compared to conventional institutes. Our 23 years of experience has allowed us to think and act in a very simple manner. To best promote our expertise, we quote Warren Buffet, whose words are the cornerstone of our investment world:

“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insight, or inside information. What’s needed is a sound intellectual framework for decisions and the ability to keep emotions from corroding that framework.”

From the above quote we can conclude that a good investor should think about and work on strengthening three basic components. We’ll help you understand these three basic components through examining more advice from Buffet in addition to other investment legends.

1.The Intellectual framework:

Having a strong intellectual framework provides a foundation for successful investing. Our intellectual framework is built on the belief that principle protection is our primary goal, growth is secondary. With that in mind, we view stocks as tools that allow us to buy ownership in a business. Here are three basics and related quotes from Warren Buffett for better perception:

A. Principle protection is the primary goal and growth is secondary:
• “Rule number 1: Never lose money. Rule number 2: Don’t forget rule number 1.”

B. Viewing stocks as a tool to buy ownership in business:
• “Buy a share of stock as though you were buying the whole company.” – Warren Buffet

C. Only buy what you can understand:
• “Draw a circle around the business you understand and then eliminate those that fail to qualify on the basis of value, good management, and limited exposure to hard times.”
• “But companies with strong histories of profitability and with a dominant business franchise.”

2.Don’t Speculate:

“Basic economic theory suggests that demand falls as prices go up. But in the case of speculative markets, the opposite seems to be true.” – Dr. Marc Faber

When it comes to stocks, what exactly is speculating? Speculating is when you buy or sell a stock based on its price – and its price only. When money managers make decisions solely based on price, they are speculating because rather than investing on the core strengths of the business – they are making decisions because they think the stock will rise (or fall).

This is dangerous because we can’t control the stock market. Whether a price that has been rising will continue to rise is out of our control! But what is in our control, is how much research we do on a business’ fundamentals and how much we invest in stable businesses that are undervalued.

3. Emotional strength:

As investors we’ve seen our fair share of bull markets and bear markets. And we are confident we’ll continue to see them in the future. The challenge isn’t to discover when they are going to happen and use them to get rich quick, but rather, to invest in sound assets that will grow over time, despite what the market is doing.

Look at the returns of the S&P 500 for the past 50 years and you’ll see countless peaks and just as many valleys. The stock market will rise and fall. The most difficult to do as an investor is stick to your gut when the market says your gut is wrong. But as Investment Advisor John Train says, “For the investor who knows what he is doing, volatility creates opportunity.”

“So, my friend like any other good student, at SAMI we work hard every day to strengthen our intellectual framework to buy and hold only excellent businesses, and ignore the market to stay away from speculation. Lastly, our 23 years of experience give us the strength to keep our emotions at distance.
Here are two sayings from our heroes Warren Buffett and Charlie Munger to conclude our investment mantra:

“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: if you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.” – Warren Buffet

• “It is not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it – who look and sift the world for a mispriced bet – that they can occasionally find one. And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have odds. And the rest of the time, they don’t. It’s just that simple.” – Charlie Munger