Portfolio managers are too often judged by short term performance, and temporary losses cause investors to get nervous and withdraw their money, limiting the long-term potential of their investments. This pressure from clients forces portfolio managers to invest only for the short-term, creating more fees, which in turn hurts performance and causes more clients to leave. Instead, our clients give us the greatest edge, and that is a long-term, business investing mindset. This gives us the flexibility to invest in our very best ideas, without being constrained by either short-term euphoria or fear.
We and our clients are Business Investors. Our clients understand the difference between a company’s true value and short-term market noise. Also, as business investors we primarily focus on limiting risk by analyzing possible scenarios. We define risk as simply the probability of losing based on real business developments, not stock prices or charts.
We position most of our portfolios in short to long-term investments, and also keep a close eye for other business opportunities. We focus on two areas in particular: Under-priced businesses and Special Situations.
o Under-priced Businesses: this usually is the largest part of our Combined Funds. We seek firms that have a sustainable competitive advantage in industries we understand and that are priced cheaply in the market for temporary reasons. We don’t see price volatility as risk, but as an opportunity to discover great companies being unjustly punished by Wall Street’s usual irrationality.
o Special Situations: this approach gives us the unique advantage that returns are not linked to stock market fluctuations, but to business developments. These opportunities include spin-offs, restructurings, mergers, arbitrage, etc. Also, we may use growth investments, shift among various asset classes and market sectors, and use hedging strategies to reduce portfolio risk and increase returns.
The holding period for these investments depends on the portfolios of your choice. Pythia Dynamic more actively seeks new long and short term opportunities and takes advantage of market fluctuations, while Pythia Value primarily looks for longer term holdings. Each Combined Fund has unique strengths and we will work together to choose those which best fit your needs.
We apply a similar business investing mindset if you investment situation warrants it. We may choose a between very select group of high quality mutual funds to meet your goals.
The investment world is focused on relative returns, with portfolio managers comparing their performance to the general market, and feel that in a way it justifies losses, as long as they’re less than the average. The idea of telling our clients that we just lost 20% as opposed to the market losing 30% upsets us. We cannot guarantee performance, but we do not make excuses for losses. We focus on absolute returns, meaning that we always want to make money and protect your capital on the downside, regardless of how the general market behaves.
Our Combined Fund portfolios are focused and well balanced, using our very best investment ideas, whose true value is much higher than what is being reflected in the stock market. We don’t hold hundreds of stocks just for the “appearance” of diversification, reducing returns and not limiting risk, as opposed to what Wall Street may want you to believe. Our Combined Fund portfolios will generally be concentrated into 10-20 individual positions when fully invested.
We may also keep portfolio assets in liquid, low risk securities or cash if necessary until we recognize a worthwhile investment opportunity for you.
Finally, based on your situation, we may select few high quality mutual funds to meet your objectives.