Investing is emotionally taxing. This inescapable truth does more harm to investing success than any other impediment. It is perpetually alluring, for novices and old hands alike to abandon well thought-out but disappointing strategies moments before they work, in order to chase successful strategies just as they are about to run their course. How do we avoid this peril ourselves?

First, we remember that in good times the country grows at about three percent and inflation is somewhat less than that. Therefore, anyone hoping to achieve greater than six percent gains in the investment world is assuming he is much cleverer than the country as a whole. Hoping for an investment result three or four times the country’s average growth rate on an unleveraged basis is a self-evident path to a world of trouble. In the good times, we remind our clients about this.

But there are hard times in investing and there is no denying this, not for us and not for anyone else. And how one deals with down years is sure, over time, to tell the tale in total results; the compound interest tables will see to that, so punishing are they if big losses are realized even just once or twice. Two principles have stood us in good stead. We are always mindful of price, particularly in good times. Meaning when good times roll we are ready to hold large amounts of cash idle, and we have done it many times in our thirty-four years. Great enthusiasm blinds good judgment and is deadly for future returns. And second, if you only own cash generating businesses, they never have to go hat in hand to the markets when times are bad and suffer the tremendous dilution that prevents rapid comebacks in value. Quick snap backs are easy if all you need is a change in opinion, from dire to mediocre for example, so long as the business hasn’t been compromised. This was our experience in 2008-2009, 1999 to 2001 and many times before.

Our compounded rate of return net of all fees is 12.6% from January 1, 1980 to December 31, 2013. Put another way, $100,000 invested with us in the beginning of 1980 would be $5,700,000 now. And all of this was unleveraged. To be sure it does not take taxes into account, since we cannot know every individual tax circumstance. But our long term style has, in fact, been tax advantageous and we do not see that changing. Past success is nothing like a guarantee of future performance, but if you would like to know how we did this, and whether a style like this might be attractive for you, please contact us at your earliest convenience.