|Investor Policy Statement (IPS)|
Our IPS is based on customized individual planning which accounts for both short and long term investment objectives. The amount of allocation to income oriented investments versus equities and/or other forms of investment is driven by the short term, (less than 5 years), need for income. Individual preferences and current economic conditions will also determine how much is allocated to secure the required income stream. Our suggested target for fixed income is an amount that is suitable to sustain the income required for the next 3-5 years.
Investments that are not required for short term needs, we believe, are best managed with a long term planning horizon, say 5-10 years or more. Equity investments have historically outperformed other asset classes over the long term, but they are often accompanied by periods of negative returns. When equities outperform fixed income, it is prudent to “top up” the fixed income portion to maintain an adequate reserve.
The purpose of maintaining a suitable amount of income producing investments is to avoid selling equities when selling could result in the permanent loss of capital.
Investment planning decisions are based around protecting capital and securing the required income stream. We apply a value based approach, where strong businesses are purchased at discounted prices relative to their intrinsic value. The discount to value provides a margin of safety against temporary price fluctuations and provides us with a high probability of above average returns, over the long term.
The study of the investment habits of Warren Buffett leads us to the formulation of a reliable framework for investment decisions. Investment concentration is one of several distinctions which differs from the approach of diversification and other concepts taught in many business schools. One of the expected results is “lumpy” returns from the equity component of our portfolios.
Another characteristic of our approach is a strong reluctance to sell investments which we believe to be in a period of temporary under-performance.