Buy low, sell high. Simple, right? In truth, it takes discipline to do it consistently. Fortunately, Anchor Capital has a simple and effective approach. Take a moment to consider the following illustration:
Price and value are different animals. Price changes daily. Value tends to be relatively stable. The former reflects the market’s perceptions. The latter represents what something is worth. So here is our approach:
- Understand value. Most investors glaze over value and rely on broad diversification for protection. In contrast, we invest the time and energy to clearly gauge a company’s value from the bottom up. This way we actually know at which prices to invest and harvest.
- Invest with a wide margin of safety and significant upside potential. We continually seek stocks trading at 50% below our estimates of value. Volatility and market inefficiencies create plenty of these opportunities.
- Harvest at reasonable gains. We harvest or trim at a 25% gain, take everything off the table at a 50% gain. Although we may leave upside on the table, this mitigates market risk – Newton’s Law is always lurking in the shadows. What about a loss of value? The liquidity of public markets offers us the ability to quickly cut losses and run.
These disciplines reward and protect Anchor Capital’s investors not only from the rise and fall of markets, but our own judgment as well.