How do we invest?
In short, it depends. Listed equities, private equity and debt markets are fundamentally different so there isn't a single set of governing rules that could encapsulate the multitude of variables that differentiate the various markets. However there are a few base investment rules that heavily govern the investment process.
1. Bottom up analysis
This means looking at a given company without much of the colour of the wider market / indexes and macroeconomic environment. Why? Although the macro world is important, we are not macro tend traders. We are also not momentum followers and tend to look at a very long term time horizon. During anything longer that 1 year, the macro world can change so much that trying to pick invetsments through a macro lens first doesnt work. Utimately we can't tell you what the market will do tomorrow or in the short term. Nobody can. Even the great Warren Buffet has often talked about his inability to predict the market and how its irrelevant to his investment decisions to buy great companies.
By using bottom up analysis though, we can decide if we like the way a given company is run, how it performs in the marketplace for its services and how it compares to its peers. A well run company may have a hard time in an economic downturn but it will do better than a badly run one, and as we are not able to forecast economic (or other macro) events, it makes sense to own best in class (for the right price) companies than focus on gabling on what interest rates or governments will do in the short term.
When we look at companies, we analyse their business model, their cash flow, their management, their competitive advantage amongst other fundamental factors. We also look at price and try to judge if we are paying too much for quality or too little for for lack of quality. There has to be a balance. Sometimes the most expensive industry leaders get complacent and it is the second in line, cheaper and more hungry companies that take the lead. The price to quality matrix is a complicated and subjective one but ultimately the key decision maker for our investments.
Business owners & operators
So we are buying shares. We are now owners. Not major holders and as such have no real sway in the way the company is run but we treat each investment as if we did. As if we owned 100% of the company. Thay way, it makes the investment more real - its not just a joy ride on someone else's business but instead it is a wholehearted decision to make an investemnt in to a particular sector / segment / country / service. Whether we own 1 share or 100% of the business, the thinking is the same.