Joel Greenblatt asserted that everyone has a volatility limit and, if you think you haven’t got one, then you just haven’t discovered it yet. Whilst I make concentrated, high-conviction investments, I keep this adage in mind.
Common Stocks and Uncommon Profits reinforced the importance of speaking to senior people within an industry - managers, suppliers, competitors and customers - to gain insights into the quality of a business. It’s the best way I have found to really find out ‘what’s going on’. Philip Fisher coined the phrase scuttlebutt to describe the process of finding out what’s really going on in a business.
Lynch likens the unfolding of an investment to seven-card poker, where, as each card is turned over, one’s estimation of the chances of winning or losing changes. The key is knowing when to stay and when to fold. Major company announcements are akin to some of the unfolding of the cards in poker. Black Crane rarely makes changes ahead of major announcements based on share price movements or rumours; rather, we reassess positions post announcements. Whilst there are typically many more than seven cards to turn over in an investment process, we believe decisions about staying or exiting are nearly always best made with full insight.
Deep Value. Tobias discusses the Buffett approach of buying wonderful companies at fair prices, versus buying fair companies at wonderful prices. His analysis suggests that the latter approach provides greater returns. At the heart of all of Black Crane’s investments is a solid business or a solid group of assets; they don’t need to be great, however they do need to be cheaply priced.