Plenty of advisers are adept at marketing, but far fewer know how to value a security, analyze company financial statements, or construct an appropriate risk-sensitive portfolio. Aspera was established to focus on investing, period, but Aspera isn't right for everyone. My approach requires patience, independent thinking, common sense, and an ability to take and hold unpopular positions, but it's enabled us to exploit compelling and underappreciated opportunities while also protecting assets during major downturns.
Some of the best investment opportunities come from deeply undervalued and misunderstood situations that offer tremendous upside over an uncertain time frame. Having a longer-term horizon allows me to comfortably hold investments without being distracted by short-term "noise". My clients and I aren't worried about daily, weekly, or quarterly returns. Many of our ideas play out over 1-5 years. Our long-term focus and patience allows us to buy securities when they're incredibly attractive and give them time to work This is something most investors can't or won't do.
The best and cheapest time to buy most assets is when others are fearful or uninterested. The more unloved, misunderstood, and inexpensive an asset, the more interested we'll be, but that isn't quite enough. There must also be catalysts that will eventually drive the security much higher if we're going to own it.
Wall Street likes to pigeonhole investors into a particular investment style camp - value, growth, momentum, growth-at-a-reasonable price, etc. Although I have a strong contrarian bent, the best word to sum up my investment style is opportunistic. I'm happy to invest in any type of asset in any corner of the world if the return prospects are excellent and the risk is modest.
The best business in the world can be a terrible investment if you pay too much for it, and a terrible business can be a wonderful investment at the right price. Security valuation is a core part of my process, and I'm disciplined in avoiding securities that I find too expensive relative to their financial and business prospects. Valuation is assessed based upon a number of measures, including discounted cash flow analysis, private market value, net asset value, and earnings, cash flow, and book multiples.
I only invest in securities/companies that I clearly understand. It seems like a ridiculous and obvious thing to state, but it's amazing how few investors adhere to it. Thoroughly researching a company's business plan, competition, industry, financial statements, and valuation seems to be a dying art. You probably wouldn't buy a house without getting inside it, checking out the neighborhood, and hiring a home inspector. The same reasoning should apply with your investment portfolio.
Just about every advisor will extol the virtues of diversification and claim it reduces your risk. What it actually does is lead to mediocre performance, and it fails miserably when it's needed most. In normal or calm markets, forced diversification results in investors owning assets that are overvalued or that they don't understand well, or both. When major downturns or panics strike, almost every asset falls at the same time, negating the supposed benefit of diversification. I'd rather own fewer, highly attractive securities or asset classes that I have conviction in and that are attractively valued than own a large number of expensive securities across numerous overvalued asset classes. We'll park funds in cash or short-term, safe yielding investments rather than force diversification.
Hope is not a strategy, and even the best investment manager should expect to be wrong a bit. I've had my home runs, but there certainly have been misses as well. The key is to recognize these situations, be responsive, and learn from them. When I buy a security, there is a thesis behind the purchase. A significant change in the thesis may result in a sale. A sale may also occur if a security becomes overvalued. Finally, even an attractive security may be sold if the proceeds can be put to better use.
Emotional investors don't make good decisions. Keeping a cool head, especially when markets are volatile, is critical. Fortunately, I'm naturally wired this way, and there isn't much that can rattle me after what I've seen in the markets these past 25+ years. I actually look forward to and thrive when the market is particularly volatile.
Pulling The Trigger
What's the point of thoroughly researching an idea or having a strong view if you can't act on it in a timely fashion, especially if prices are moving quickly? At Aspera, there is one portfolio manager who is responsible for all investment decisions. It can be very challenging at times to find truly outstanding investment opportunities, so when they do appear I don't hesitate to take advantage of them.