We take our inspiration from likes of Warren Buffet and Benjamin Graham. Focus at ChainStreet Capital is long-term growth with relative safety. We strive to achieve this goal through value investing and view a stock as a long-term partial ownership position in a business, not as a piece of paper that changes hands daily. We will attempt to provide you with returns greater than those of the overall stock markets, net of our fees and trading costs, over a reasonable period of time (3-5 years).
While many people assume that True Worth of anything is Market Price, we make clear distinction between Intrinsic Value(True Worth) and Market Price. They are not the same. Time to time, they might be in the same range or be miles apart.
Imagine a scenario where an envelope contains $1000 and it’s sealed. The envelope also has some details on its cover which can be analyzed by an analyst to estimate the Intrinsic Value(True Worth) of the envelope. Now the envelope starts trading in open market and its price fluctuates widely from $500 to $2000. Clearly, the Market Price is fluctuating from $500 to $2000 but Intrinsic Value(True Worth) of the envelope remains unchanged at $1000 all the time.
After analyzing the details on the cover, we love to purchase this envelope at $500 and then sell it as soon as the market price is around $1000. It will be clear speculation to continue holding the envelope if the Market Price is over $1000. We never speculate and only purchase and hold the envelope if it is trading at substantial discount to our estimate of its Intrinsic Value(True Worth). Similar thing happens in stock market frequently. Often we spot solid businesses selling either much below or above its Intrinsic Value(True Worth).
At the basis of our investment strategy is buying a business much below its Intrinsic Value(True Worth). We seek to invest in stocks and other securities that we believe are selling at a substantial discount to their Intrinsic Value. Evaluating businesses might not be as precise as the estimate of $1000 for our hypothetical example but we don’t need exact value. If we can estimate the range of business value in $900-$1100 then buying at $500 provides us with margin of safety and protects us even if we are wrong by 10-20% in estimation of value of the business.
Unlike our envelope, the Intrinsic Value of any ongoing business does not remain constant for any extended period of time. We calculate the Intrinsic Value of the stock(business) time to time and compare it with the Market Price to evaluate if we should buy or sell or continue holding our stock(business).
Even if we buy the $1000 envelope at $500, we can’t stop it to trade at $400 after we bought. If we have more money then we have option to buy more envelopes at $400 or simply wait till market recognizes its true worth. Business(stock) can trade either at $400 or $600 immediately after our purchase price of $500 but we do not concern ourselves with short-term performance which, in our opinion, is less than three to five years.
We analyze last 10 years of balance sheets, income statements, annual and other reports, which all public companies are required to file with Security and Exchange Commission(SEC), to identify solid business and evaluate its intrinsic value. We only stick to the businesses we understand and if a specific business is selling at much below its intrinsic value then we buy it. We monitor the stock(business) on daily basis and calculate the Intrinsic Value after each quarterly filing or major event related to the business. We constantly compare the intrinsic value with market price to determine if we should buy, sell or hold.
Concentrated and dynamic portfolio
We always try to be invested in our top 15-25 ideas. We don’t believe in over diversification because we want to invest only in good ideas. We believe that 15-25 ideas taken together provides enough diversification. We are not looking to invest in our 473rd best idea for a simple reason that our top 15-25 ideas will be far superior to our 473rd best idea.
We don’t believe in restricting our investment to only small cap or mid cap or large cap. We have “go-anywhere” portfolios, meaning we invest in the best, most undervalued companies regardless of where we might find them. We are only interested in buying $1000 envelope by paying $500 and we don’t care where we find the envelope. Our only focus is on long term growth of capital without taking undue risk.
We both have options and only time we should work together if we are good fit for each other. We strongly believe in only working with clients who can benefit from our disciplined Investment approach focused on adding long term value.
While it might not be obvious but Choosing right clients is very important to us. We will gladly turn down potential clients who are looking for speculative bets such as momentum trading or hottest trend in the market because we neither believe in speculation nor going to start now to attract new clients.
Clients have 24/7 online access to their investment accounts, and we send a quarterly letters to clients which might include our rationale for buying, selling, or holding particular securities as well as our thoughts on various investment topics.
Since We don’t invest in whole market, our portfolio will not move in lockstep with the market . We invest in individual stocks(business) which we believe will provide satisfactory risk adjusted returns. We do not day-trade, jump in-and-out of the markets, or otherwise “play” with stocks. Our focus is to dynamically manage the portfolio to achieve long-term, above-market returns for clients over the course of many years.
|Speculation vs. Investment||How we are different|