The majority of each equity portfolio is invested in high quality, well-managed businesses that are purchased at a discount to their intrinsic value. These are understandable businesses characterized by high returns on equity, abundant free cash flow, pricing power, and favorable long-term prospects.

A smaller portion of each portfolio may be invested in lower quality businesses that are cyclical, controversial, or face negative headlines. We only buy these stocks if we can purchase them at a steep discount to their intrinsic value.

Capital preservation underlies our investment philosophy. In other words, never lose money on a permanent basis. Our focus is return “of” capital before return “on” capital. This is accomplished through proper asset allocation, adequate diversification, the purchase of sound businesses and the purchase those securities at an adequate margin of safety.

We concentrate our equity holdings in the stocks that we believe have the best risk-reward potential. When fully invested, the typical equity portfolio will have between 15 to 35 stocks.

Stocks are sold if they become significantly overvalued, if they represent too large a percentage of a portfolio, if our original thesis is flawed, or if we find better risk-adjusted alternatives.