Key Principle No. 7

Value investing requires extraordinary patience.

Many of our investment ideas rely on a concept that we call “time arbitrage.”

Time arbitrage means that we agree with other investors about a company’s prospects, but we disagree about how fast these prospects will be reflected in the stock price. Frequently, Wall Street and institutional investors are only willing to look at catalysts that might affect the stock price in the next 6 months. We are willing to look for significant changes that might occur over the next 2-3 years. It has been our experience that sometimes the changes occur more quickly, and other times the rewards are great enough to make the wait worthwhile.

Hyperactive hedge fund dudes often view our ideas as “dead money.”  If the only risk in a stock is the risk of dead money, we are often willing to take that risk.

Someday everyone should take a walk through the tall buildings near Wall Street.  They are filled with thousands of highly educated people looking for tiny short-term catalysts that very often are not really there.  Every once in awhile there are giant catalysts lurking out in the next few years that are simply ignored.

Patience is indeed a virtue.

Value investing always looks so simple after the fact. It has been our experience that actually living with a real value portfolio is the difficult part. It is our intention to allow you to watch the pain and suffering needed to actually manage a value portfolio.

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