We are value investors who seek to generate market-beating returns by making prudent, disciplined, and sustainable investments. We accomplish this goal by adhering to a core set of investment principles:
- Think independently.
We believe attractive returns are often generated by not following the crowd. We follow the philosophy articulated many years ago by Warren Buffett: "be fearful when others are greedy and be greedy when others are fearful". Our portfolio managers and analysts are decidedly independent and often contrarian; as a result, Appleseed’s investment portfolio generally reflects an unconventional investment approach.
- Look for absolute value, wherever it may be.
Many investment managers limit their investment universe in order to be classified as a “small cap growth” manager or a “large cap core” manager. At Appleseed, we look for deeply undervalued, responsible companies; beyond that, we place no limitations on ourselves. We own both small cap and large cap companies in the Appleseed Fund portfolio. Additionally, we own companies that are domiciled in the United States, but we also invest in value opportunities abroad, as long as they meet our investment criteria.
If we cannot find attractive investments, we are willing to hold cash until we find them.
- Invest with a long-term perspective.
When we invest in a company, we expect to own it for years. For that reason, we try to invest in high quality companies enjoying durable competitive advantages, which are operated by competent and dedicated managers. We also seek to invest in companies that generate strong cash flows and have pristine balance sheets. Finally, we look to purchase shares of companies whose business models have strong fundamentals. By taking this approach, we believe time is on our side. Consequently, when we invest in situations where a business is temporarily underperforming, we can be patient and wait to see if earnings improve.
- Focus capital on our best ideas.
We do not seek diversification for its own sake. In any investing environment, many stocks, and sometimes entire sectors, are fully valued or are overvalued; needless to say, we purposefully avoid investing in these situations. At the same time, if we see a sector or a company that is significantly undervalued with limited downside risk, we are willing to make over-sized investments. We invest in businesses with commitment and conviction; when the stock price of one of our investments declines, we re-assess the situation and if appropriate add to our position. In our view, this approach helps us manage risk and allows us to take full advantage of attractive investment opportunities.
- Manage risk of permanent capital loss.
We spend as much time and effort trying to avoid permanent loss of capital as we do trying to generate positive returns. Our most useful risk management tool is our investment discipline of making investments at substantially discounted prices compared to our intrinsic value estimates. Owning high quality companies, whose principled managers operate those companies in a responsible manner, also reduces risk. In the 2008-2009 bear market, for example, our risk management efforts paid off as Appleseed Fund greatly outperformed its benchmark by minimizing its exposure to highly leveraged financial stocks. The Fund’s important risk metrics are available here and its performance history is available here.
No investment strategy, including an absolute value strategy, can ensure a profit or protect against loss. Additionally, investing in an absolute return strategy may result in underperformance during a bull market.
Investments in international markets present special risks including currency fluctuation, the potential for diplomatic and political instability, regulatory and liquidity risks, foreign taxation and differences in auditing and other financial standards. Risks of foreign investing are generally intensified for investments in emerging markets.