We spend as much time and effort trying to avoid permanent loss of capital as we do trying to generate attractive returns. Of course, we make our shares of mistakes, but avoiding undue risk is a key part of our investment process.

  • Valuation: Our most useful risk management tool is our discipline of making investments at substantially discounted prices compared to our intrinsic value estimates. By only investing in companies that have at least a 50% potential upside between the stock price and our independent estimate of intrinsic value, we believe we limit our overall downside risk. We stress-test all of valuation estimates by looking at worst case revenues and also deteriorating profit margin scenarios.
  • Quality: We strive to own high quality companies with principled managers that run their companies in a responsible manner to reduce risk. For example, in the 2008-2009 bear market, our risk management efforts paid off as the Appleseed Fund outperformed its benchmark by avoiding highly leveraged, opaque financial stocks.
  • Knowledge: During our research process, we make every effort to uncover every possible way that our investment thesis might go wrong. Once we take a position, our investment committee and our analysts constantly challenge the underlying assumptions of our investment thesis for each portfolio investment. Our analysts monitor each of the portfolio holdings intensively via SEC filings, quarterly conference calls, and meetings with management.

Risk Management Results - through 09/30/14

  Sharpe Ratio Standard Deviation Downside Risk Tracking Error
Appleseed Fund +0.47 18.24% 13.18% 12.92%
MSCI World Index +0.31 19.19% 14.10% -