The first rule of investing is, don’t lose money; the second rule is don’t forget Rule No. 1.
— Warren Buffett, Letter to shareholders

Preserving Capital

Our first and foremost goal is long term capital preservation.

We make it a priority to only consider potential investments that we believe display a very low probability of default and where we feel downside is limited. For this reason, we have a general dislike towards corporate debt – particularly so, when we judge that debt to be excessive. It doesn’t matter how many good years a company has had utilising excessive debt, it can take only one poor year for all that good to be undone.

Long term capital preservation is a simple concept. However, it is widely misunderstood by equity managers who aim to make excessive returns without paying enough consideration to the potential risks. 

No matter the potential upside to an investment, it is the downside risk that concerns us. We would rather be patient and pass up an investment opportunity than to accept undue risk. Once we are comfortable with the long term viability of a company, our next consideration is the likelihood of the company outperforming.