Similarly to the inspiration drawn from Warren Buffett’s original investment partnership of the 1950’s for determining the fee model for the Aligned Capital Partnership Investment Trust, the concept of Aligned Capital Partnership’s Investment Principles comes from the ‘Owner’s Manual’ which Warren Buffett issued in 1996 to the shareholders of Berkshire Hathaway.
My goal is to build a strong multi-generational investment track record for the Aligned Capital Partnership Investment Trust and therefore, in organising Aligned Capital Partnership’s Investment Principles, my thoughts have been guided by Charlie Munger who said, “Avoiding stupidity is a lot easier than seeking brilliance.”
Aligned Capital Partnership will always:
- Insist on a margin of safety;
- Believe that this time is never different;
- be patient and wait for the fat pitch[1];
- be prepared to be contrarian;
- understand that risk is never a number, and it can only be attempted to be measured after the fact; and
- be cautious of leverage.
Aligned Capital Partnership will never:
- seek to time the market;
- hedge;
- short anything;
- employ leverage;
- trade frequently;
- panic when the market falls;
- follow when others chase the next investment fad;
- engage in “Greater Fool Theory”[2]; or
- invest in some sectors at all, including those I know nothing about, those I cannot understand and/or those where the odds are stacked against succeeding (e.g. biomed and exploration)
[1] Warren Buffett has been using a baseball metaphor to explain his investing philosophy for decades, going back to his admiration of Hall of Fame baseball hitter Ted Williams. In the book “The Science of Hitting,” Williams analysed the interaction of a wooden stick and a horsehide sphere. He concluded that he would hit four out of 10 pitches — a feat few players match — if he swung only at balls in the “sweet spot,” the middle of the strike zone. Success is half as likely with balls in the edges and corners, Williams believed.
Buffett follows that concept in investing: Success is most likely if the potential purchase is exactly right (the fat pitch), and strikeouts tend to happen at the margins.
[2] Where the successful outcome of an investment is relying on someone more gullible to come along and pay an even higher price for it. I wisely assume that there is no greater fool than me.