The best emotional perspective looks decades ahead, and takes advantage of the calmest moments to make the biggest decisions. That's how we try to work with our clients.
Investment management at Palmerston is organized around three ideas:
- Investing Is a Marathon And Staying the Course Is An Emotional Discipline
- Learning From Others Is A Core Investment Principle
- Margin of Safety Sharpens Investment Focus
1. Investing Is a Marathon And Staying the Course Is An Emotional Discipline.
There are all kinds of irrational biases that can infect financial decision-making. One of the hardest to resist is following the herd. Another is recency bias, which causes investors to overemphasize recent market movements while underestimating other factors.
As Warren Buffett once said, “Don’t just do something, stand there!” The best emotional perspective looks decades ahead, and takes advantage of the calmest moments to make the biggest decisions. That’s how we try to work with our clients.get your free Assessment
2. Learning From Others Is A Core Investment Discipline
We think it makes sense to watch and learn from some of the world’s greatest investors–and then try to apply that knowledge for our clients’ benefit.
3. Margin of Safety Sharpens Investment Focus
Palmerston follows a Margin of Safety discipline, broadly defined.
Margin of safety is bargain hunting on steroids. The strategy was pioneered by Benjamin Graham, the dean of value investing and the founder of modern security analysis. And it has been revised and refined by many outstanding investors, most famously Warren Buffett.
Margin of safety investing involves the systematic comparison of values and prices. Value is the sum of future profits earned by a company during its lifetime, discounted back to establish a present value.
The margin of safety investor searches for gaps, ideally very large disparities, between this intrinsic value of a business and the extrinsic, fluctuating price of shares of that business. Price matters.
A margin of safety analysis looks for value in the right places. There are a variety of right places. How sustainable are a company’s earnings? What are the prospects for earnings growth over time?
Well- run businesses that produce consistent (and compounding) high returns on invested capital can present outstanding opportunities, provided that the price is fair.
Topping this list are companies with unique economic franchises that are difficult for competitors to replicate. Franchises possess key competitive advantages like strong customer loyalty and leadership in markets with high barriers to entry.
Consequently franchises enjoy pricing power. Franchise companies also can also allocate more of their free cash flow to activities like sales and marketing that boost profits and relatively less to those required to maintain a business.