Avoid Permanent Capital Impairment. One of the most important aspects of successful investing is knowing how to avoid permanent capital impairment. In an effort to avoid these mistakes, the Strategy:
Invest in Quality Companies at Attractive Valuations. One of the best ways to generate strong absolute returns, along with outperformance over full market cycles, is to invest in quality businesses at valuations that do not reflect the underlying companies’ quality and future growth potential. As a result, we are typically looking for quality companies that appear misunderstood and/or out of favor.
The Strategy defines quality companies as ones that we believe have:
Preference for Companies with Good Management. Ideally, we like to invest in businesses that are well managed from an operational and capital allocation standpoint. As a result, we may consider investments in good businesses that are not well-managed provided executives can be replaced and there is an ample discount to our estimate of intrinsic value. Often times, the reason a quality company is offered at a cheap price is due to poor results that stem from mismanagement.
FPA U.S. Value Fund