We are business investors at heart. We care (a lot) about the fundaments and prospects of the companies we invest in, their capital structure and how skilled management is in allocating the company's cash flow.
Our approach is to own a portfolio of businesses that will do well in almost any weather condition. We will be risk takers, but only when the upside more that offset the potential for loss.
We consider those who invest in Raven as our partners, rather than clients. For that reason, doing what we say and saying what we do is a maxim that is ingrained in our way of working. This means transparency about our investments, our cost structure and even the mistakes we will no doubt make along the way.
Concentrate in Great Companies
We invest in a very select group of 10 to 20 companies diversified across industries, countries and life cycle.
Heads we win, Tails we don’t loose much
Invest in ideas with asymmetric risk/reward profile. The business must be offered at a price below our conservative estimate of fair value.
Time Horizon
Long holding period of 5+ years for majority of the portfolio. Trend and momentum drive prices short term. Business fundamentals drive value - and price - long term.
Investment Process
When we find a company we like, we go through our research process looking for reasons the specific company or valuation might not be right for us. The steps often take weeks or months depending on our familiarity with the company and industry.
We often buy companies and industries that are out of favor. They might even be ridiculed in the press. But that is exactly why we can buy a great company at a steep discount. Often, the stock price will continue to fall after we make our initial investment. All this might feel uncomfortable in the short term but is exactly why we are able to generate a great return in the long term.
Why not just index?
For many investors, investing in a couple of index funds is the simplest and most likely way to generate a good return. By definition, it is also a sure way to achieve average results. For investors with a proven investment process and a long time-horizon it is possible to generate a return above the market. Why?
Markets are efficient most of the time. Not all the time.
The price of any stock is based on what the sum of buyers and sellers are willing to pay and sell for. In other words, the market is made up of humans. And humans are reasonable most of the time. But every now and then their emotions control their thinking and they sour on a particular company or even the entire market. That provides opportunity.
High exposure to specific countries and sectors
With the huge success of indexing, many investors have moved from active managers to passive index funds. This often leads to a large exposure to the markets and industries that has seen the biggest price appreciation, such as US and Technology. This is all fine as long as the music keeps playing, but it also makes the portfolios exposed to negative momentum.
Active stock selection is more attractive today than 30 years ago.
Another side effect of the success of indexing is that fewer investors and managers are doing deep fundamental company research. Especially on small and medium size companies. This creates opportunity for those who can do the fundamental work and are willing to invest in the companies with the biggest mispricing and opportunity.
