By risk, we primarily refer to financial risk for the investment strategy and the targets in question.
This involves two key parameters:
- The probability of losing capital
- The volatility of returns
We address these and try to minimize risk to a minimum by:
- Selecting targets with large economic moats (that is quality businesses)
- Hiring managers whose primary set goal and proven expertise is widening the economic moat
- Introducing highly incentivized and profit-oriented compensation
- Keeping capital allocation within our control
- Buying into quality businesses at prices incorporating margins of safety compared to their intrinsic value