1. Avoid highly leveraged businesses. Focus instead on strong balance sheets.
2. High conviction portfolio with a low amount of positions. Investing in the fund’s best idea will almost always yield a higher return than the 100th idea. This allows adequate time to find new investments and understand existing investments back to front.
3. Diversification for the sake of diversification does not necessarily reduce risk. A high conviction fund can carry less risk than a large portfolio of duds or similar firms.
4. Look to buy companies valued at low multiples if they are generating strong cashflows and have sound future prospects.
5. The best asset a firm has is its brand and the fund will tilt towards companies with strong brands.
6. Take advantage of low commodity prices which often represent opportunities.
7. Be fearful about any investment being hyped in the media and market.
8. Always analyse an investment for its intrinsic value alone. Often, fast growing companies at high historic multiples represent the best long-term value opportunities
9. Look to re-invest dividends when a firm offers discounted shares.
10. Keep low levels of cash. The best hedge against volatility and downside risk is to own great businesses. Capitalism will do the rest.
11. Avoid shorting stocks and hedging with options. As tempting as it sometimes is to bet against a company or the economy, capitalism is generally a great tool for growth. The ASX has returned over 10%/annum since 1875 (with dividends reinvested). Focusing all efforts on finding great businesses is far better than splitting focus.
12. Target annual outperformance of +10%/annum above the ASX300.