How does Valor shield & grow
Our goal is to shield your portfolio from permanent loss whilst enabling it to grow.
We do this with two main investment portfolio philosophies:
Safety First Portfolios
Safety First Portfolios are constructed using our ‘Safety First’ methodology where we select investments based on their resilience. Resilient businesses provide greater certainity about their future which can provide a shield against the risk of permanent loss.
Our ‘Safety First’ methodology which is based on Warren Buffett’s tried and tested investment philosophy seeks to identify resilient businesses which are/have:
Understandable - Does the business make sense? Investing in difficult to understand businesses because of hype significantly increases the risk of loss due to ignorance. We prefer businesses that make sense, risks and advantages can be mapped out and their financial statements and announcements are understandable and clear. Here we also apply environmental and sustainability filters.
Competitive Advantages- Businesses that have competitive advantages have effectively created a moat to protect and grow their business inside of. Businesses without this can have their IP and markets stolen from them and very quickly fail.
Capital Independent - We prefer a business which can stand using its own capital and resources rather than one that is propped up by outside funding.
Managed by quality professionals - The business is run by people so their skills, experience and values are critical to the success of the investment. We investigate their backgrounds and governance practices to ensure the investment is unlikely to have poor decisions that erode the value of the business. This is where we apply good governance hurdles.
Incentives are aligned with shareholders interests - We look closely at how aligned the interests of the management and people are to the investors interests. If they are not aligned, staff incentives could erode your returns. We want skin in the game from the key management.
Appropriate for the cycle - Like plants, different businesses thrive in different cycles. When selecting businesses, we consider the economic and business cycles and filter out those that won’t thrive in the current and upcoming conditions.
Priced rationally - We value all of our investments independently from each other internally and externally and then cross check against each other. The price of the investment will then need to be within a rational range of the valuation. Our goal is for the investment to be the most logical allocation of capital out of all options available.
Businesses and fixed interest bonds that satisfy the above criteria go into our core Safety First Portfolio.
Outside of the core Safety First Portfolio, we sometimes have investments in an Opportunity Portfolio where we select investments with a high probability of success over a shorter time frame. The percentage of the overall client portfolio allocated to these Opportunity Portfolios is low as there can be periods with no opportunities however when they occur, they can be very profitable.
Opportunity Portfolios contain investments that satisfy one of the following 2 selection criteria:
Wide margin of safety
This is the traditional ‘value’ method of investing. It is where you buy something heavily on sale and wait for it to return to the normal value. These opportunities happen rarely but when they do they require prepared investors to take quick action. The investment may be on sale due to an overreaction of the market in general or specifically. It takes knowing the company from long term research to be able to confidently know if the sale price is a rational price or not. We maintain a list of companies that meet many of our investment criteria above and when the market goes on sale, we are able to act quickly and take advantage of the temporary low prices providing enhanced returns for clients and effectively buying a dollar for less than a dollar.
2. Macro Economic Reversion to Mean strategies
Sometimes, the global macroeconomic conditions create bubbles that when they burst can cause rapid loss in asset prices. Economic bubbles driven by debt follow a cycle and can be predicted enabling investments to be positioned to benefit from the ‘pop’.
For example, the macroeconomic conditions that inflated the Australian dollar to above parity (1 USD) included the China debt fueled property boom driving the demand for Australian resources. When the debt dried up, the Australian dollar fell. We could see this coming and were overweight in USD creating a significant boost to the portfolio returns.
Again, although we use this strategy when opportunities are available to enhance returns, we primarily rely on our Safety First Portfolio to provide wealth built to last.
To find out more about what exactly we are invested in and how we keep your fees and taxes low, read more in our Investment How section here.