Investment Philosophy

Our Perspective

View on Market

A financial market is a place where a beauty contest is the rule. Price is not value. Price is a point where both sides of the herds of a transaction meet at a moment in time. It is just like a musical chair. What matters is not what you are getting, but you have to predict and forecast others, a part of the market as their aggregate.

Unfortunately, unlike private assets that do not have mark-to-market pricing, public equity’s high liquidity & pricing transparency has forced it to get monitored by a short time horizon. It even enhanced short-term herding minds, and long-term money was left and moved to private assets. Due to this trend, public investment has largely confined itself to an investment of market factor and developed further into fragmented rule-based investment vehicles of ETFs.

That being said, the private market is not scalable quickly. Due to massive inflow, dry powder at PEs is getting higher structurally, and the cap rate has declined. Ironically, this money flow-led pricing increase led to a better performance of private assets with apparent idiosyncratic character. While the pricing mechanism is quite different (market pricing vs. judgemental pricing service), the core principle of enterprise value growth is the same.

What We Do

Thus, in the public market, the primary focus is on intrinsic value and growth – just like the private market does – and it works best in the long run through short-term noises. Ironically, those short-term noises that the market participants hate turn out to be a precious source of strong returns after all and years after. However, it may look the other way around in the short run if the investments are selected rightly from the long-term fundamental investment perspective.

We have seen so many commercially motivated funds and companies providing short-term pain medication solutions, which drives even more orientation toward minds biased toward short-term control.

Did it improve the asset owners’ long-term aggregate return, or did the price variability reduction have a favorable long-term outcome as planned? Given the past trend, it should have, but the fact is that the goal has yet to come closer. The question to be asked is whether the goal, framework, and process of managing short-run volatility were truly and logically designed to deliver economic surplus for asset owners. Or were those risk control products or services merely generating excessive and unnecessary fees, and even worse, are those activities working in aggregate as a systematic cause even to raise short-term price variability?

On the contrary, we are intentionally and unconventionally loyal and rigorously adhere to what the core principles of fundamental and long-term investing teach us. We do not engage in herding behavior and keep our distance from those speculative games, as process integrity with philosophy is the key. We have learned the reality of the market through experiences as institutional portfolio managers who are forced to think strategically in that way.

This path is not easy, so herding is prevalent among many market participants. Fortunately, we have been intensely mindful of this pitfall for a long time, trained ourselves to act on the long-term investing principle, and built the process with integrity.