How We Invest

Value Investing

  • We practice “value investing,” which is simply buying securities for considerably less than they are worth. We do not try to time the market, forecast macroeconomic outcomes, or predict the short-term movements of stock prices. We seek to buy good businesses for less than they’re worth.
  • Market prices of businesses eventually converge with their underlying values, so an investor with a long time horizon has the ability to wait out short-term price fluctuations in order to recognize the gains from buying undervalued securities. We believe that having a long-term outlook gives us a competitive advantage.
  • We seek maximum returns regardless of asset class, which means the mix of the type of securities the fund will invest in will change from time to time. We do not constrain the Bretton Fund to a certain type of security, sector, or market capitalization range. Given our expertise and the return potential, we will most often be invested in the stocks of US-based companies, particularly companies with strong economic characteristics.

Evaluating Businesses

  • In order to accurately value companies, we look for businesses we understand. We evaluate the microeconomic forces of a business, including how pricing is determined, competitive advantages, and future demand for the products.
  • We look for companies whose products will become increasingly relevant to the economy as a whole. If a company’s products become obsolete over time (e.g., camera film, horse-drawn carriages), it’s unlikely the company’s shareholders will achieve high returns.
  • We look for defensible businesses. A company can only generate high returns on its investors’ capital if it can protect its earnings from competition. We look for businesses with attributes that give them a competitive advantage, such as a strong brand, economies of scale, a network effect, or loyal customers.
  • We seek ethical businesses, and we will decline to invest in a company if we believe it has a material negative impact on the world.
  • Like most investors, we look for competent and ethical management teams. We also seek managers who are committed to shareholder returns, not just management returns.
  • A wonderful company may not always mean wonderful returns for investors; it depends on the price at which an investor acquires the ownership stake. Even a great company purchased at too high of a price will lead to poor investment returns. We determine the economic value of a business by estimating what the company will make in the future, and we will only invest when we can get a price considerably below our estimate of economic value.

Building a Portfolio

  • To maximize our investors’ returns, we focus the fund on investments that we believe have the highest risk-adjusted return potential.
  • We believe 15–20 investments across various industries achieves a sufficient level of diversification while allowing the fund to be invested in our best ideas.
  • We do not constrain the portfolio to a particular asset class or market-capitalization range, nor do we try to mimic the sector weightings of a market index.
  • Unless we see a significant number of high-return, attractive investments, we intend to maintain a moderate level of cash. This gives us the flexibility to deploy new capital when attractive opportunities arise.

Managing Risk

  • We seek to reduce risk to the Bretton Fund by avoiding investments that have a significant chance of a permanent loss of capital.
  • We avoid companies with excessive debt or other forms of leverage.
  • We avoid companies that are opaque or difficult for us to understand.
  • We avoid investing in companies at high valuations.
  • We avoid businesses in declining industries.
  • We avoid industries where individual companies cannot create a competitive advantage.

When We Sell

  • We sell a security when it becomes overvalued.
  • We sell a company when its business fundamentals have deteriorated.
  • We sell a company when we recognize that we were wrong about our original assessment of its business.