Value Investing in a “Bursty” World

The following article is extracted from the Bamboo Innovator Insight weekly column about the process of generating investment ideas among wide-moat businesses in Asia. Each month, an in-depth presentation on one such business is featured in The Moat Report Asia.

“If we have low growth sustained over a long period, we will always be vulnerable, vulnerable to geopolitical risks … vulnerable to ‘financial Ebolas’ which are bound to happen from time to time.”
–Singapore’s Deputy Prime Minister Tharman Shanmugaratnam and Chairman of the IMF Committee at the IMFC press conference on 11 Oct.

Bursts – the short flourishes of intensive activity preceded or followed by long periods of nothingness, stagnation, low growth – appear to be the hidden order that govern phenomena from the Ebola to 4G LTE (Long-Term Evolution), yielding deep insights into how value investors, entrepreneurs and governments can respond effectively to rapid, non-linear, complex changes happening around us.

Looking through this “bursty” lens can hopefully help value investors better understand the chip battle between Qualcomm (QCOM, MV $121.4bn) and MediaTek (2454 TT, MV $21.7bn) to identify the long-term “winner” and whether the request from the Bill & Melinda Gates Foundation to CSL Ltd (CSL AU, MV $31bn) to produce a hyper-immune plasma product collected from the plasma of people who have recovered from Ebola can be an effective antidote when transfused in patients. Since the first Ebola case occurred quietly in Guinea and West Africa in Dec 2013, the rate of spreading has multiplied exponentially from a few cases to more than 9,000 confirmed cases and over 4,000 deaths and the virus has jumped to urban centers in Dallas and Madrid this month, posing unprecedented dangers. The worst-case scenario from the US Centres for Disease Control foresees 1.4m cases in West Africa by late Jan 2015. While hospitals have “surge capacity” to open more beds and call upon more doctors in a time of need, using such resources is very expensive and as crisis hits, the robust-yet-fragile healthcare system can break down. Other bursts are also pressing ominously on us: bursts in accounting frauds from Chinese companies to Tesco; bursts in capex spending that led to oversupply in energy and commodities which led to recent declines; bursts in borrowings to be repaid by Asian corporates, property developers and REITs; potential bursts in bad debt and default of credit-binged Chinese firms; bursts in regulatory actions against foreign companies in China and so on.


A conversation with our Institutional Subscriber Mr. W over Qualcomm and Mediatek had triggered the link to a thought-provoking book that we bought in Omaha in 2012 by Albert-László Barabási titled: Bursts: The Hidden Pattern Behind Everything We Do, The “power law” that governs many networked structures and human behavior resulted in bursty patterns. We attend to our health, for instance, in bursty patterns, overlooking symptoms until a health problem suddenly becomes too serious to ignore, producing a bursts of medical visits in a short time. Most emails are replied fast while several emails could wait for a long time before being handled. “Once you understand the origins of these bursts,” Barabási says, “it can really change your perspective on how you do things, and how you expect other people to respond.” Consider this example for IoT (Internet of Things) entrepreneurs and the Apple Watch. Japanese doctors discovered that they could predict the impending onset of depression by monitoring their physical movements with motion-sensitive watches. Since depressed people often report feeling physically sluggish, when there is a change in the patients’ normally bursty physical activity, it signalled the onset of a depressive incident. 

MediaTek (2454 TT) Vs Qualcomm (QCOM) - Stock Price Performance, 2001-2014


Back to Qualcomm on its bursts of crisis in China – and how its own bursty deep intangible knowledge in LTE helps it to stay resilient. The antimonopoly probe by the Chinese authorities into Qualcomm for its pricing and licensing business model has the San Diego-based innovator facing fines worth over $1bn and there is the possibility that licensees will pay the company even less after the fines are announced. Qualcomm generates around half of its $25bn in revenue from Chinese customers and Chinese smartphone makers are currently paying nearly 3 to 6% of their phones’ free-on-board shipping prices as licensing fees, which rise if the companies are selling higher-end smartphones using premium components. Qualcomm is missing earnings estimates because of trouble collecting royalty payments in China. This has resulted in short-term weaknesses in share price as Qualcomm is down 11% since July and prompted sell-calls by analysts. Qualcomm is the dominant leader in high-end 4G LTE chips globally and in China, accounting for 80% of the Chinese market. The LTE is an advanced technology for faster data transfer. LTE has become standard in U.S. phones and it is slowly being introduced in other parts of the world.

taiwanTaiwan’s MediaTek on the other hand is the largest provider of low-cost chip solution for lower- to mid-end handsets and smartphones. Founded by MK Tsai in 1997, MediaTek started off designing chips for digital televisions and optical devices like DVD player (where it once dominates with 80% global market share) and now sells over 200m smartphone chips in Asia, with 60% market share of the 3G handset solution market in China for makers such as Lenovo (992 HK, MV $14.7bn), ZTE (763 HK, MV $8bn), Coolpad (2369 HK, MV $771m), Xiaomi. Qualcomm has also launched a lower-end chipset featuring 32-bt and 64-bit processors to compete with MediaTek, triggering price cuts for MediaTek’s new offerings.

Intel had also entered the fray in the lower-end mobile chip segment by investing $1.5bn in Sep for a 20% stake in two Chinese mobile chipmakers Spreadtrum Communications and RDA Microelectronics through shares in a Tsinghua University holding company Unigroup, with the aim of jointly developing and marketing smartphone chips. Spreadtrum is the second largest fabless semiconductor company in China, while RDA is the third largest. The largest, HiSilicon, is a subsidiary of privately-owned Huawei Technologies. The latest Tsinghua deal is Intel’s response for its slow recognition of the mobile revolution in designing new processors for smartphones and tablets. Beijing wants Unigroup to become competitive with Taiwan’s MediaTek within five years and overtake Qualcomm within 10 years. However, the lower-end market has been shrinking due to consumer demand for more advanced offerings. Demand for lower-end smartphones is mostly being seen in emerging markets, where counterfeit and domestically developed products dominate.

In response to the inevitable move by the global and Chinese handset market towards the 4G era, MediaTek had launched in July its 4G LTE smartphone chip MT6596, what the Taiwanese company said is the world’s first with eight octa-core processors which will allow for outstanding performance with ultra-low power consumption. China’s telecom operators have also cancelled their subsidies for 3G smartphones and shifted their promotional subsidies to 4G smartphones in June. Besides wooing the high-end smartphone and tablet markets in China, MediaTek has entered US where it supplies less than 3% of smartphones sold by setting up shop in San Diego, California, hometown to Qualcomm, to compete directly with Qualcomm.


Having met with Qualcomm’s Dr Irwin Jacobs when he was in SMU in Jan (Any Benjamin Franklins in Asia? Part 2), we think that the complexity of the LTE technology is underestimated by the industry given the bursty nature in how we use our smartphones and data in diverse types of environment and heterogeneous networks for seamless mobile connectivity. This deep intangible knowhow embedded in their LTE/4G baseband SoC chipset solution to have more capcity for bursty usage and connect to telecom carriers and different spectrum is unique and not easily replicable in terms of high-performance by MediaTek and is beyond the hardware wide-moat that Mediatek is good in. As Qualcomm’s SVP Bill Davidson commented, “It’s not about how many cores; it’s how you use them. We can do things more efficiently with fewer cores.” The “power law” that governs Qualcomm in building up its micro-architecture and intangible knowledge in advanced LTE should continue to help it widen its wide-moat advantage and leadership.

We think both Qualcomm and MediaTek will be long-term resilient winners. MediaTek is also working on expanding into chip solution for the wearable device and IoT markets, including for the connected home appliances and intelligent car. MediaTek has developed two sorts of chips, with one aimed at powering more complicated and data intensive smart home appliances such as cameras and home surveillance systems and another for devices needing less effort such as smart plugs, lights and sensors. The group has also developed a single interface compatible with all smartphones that can control different smart home appliances. An intelligent requires at least 150 processors, significantly higher than for smartphones. The vehicles’ intelligent technologies will be able to perform multiple functions at once. For instance, the headlights of an intelligent car could sense surrounding light levels and adjust their brightness accordingly. In essence, MediaTek’s turnkey solution is designed to let a thousand flowers bloom in a number of new consumer devices. MediaTek’s turnkey solution strategy has been a key success factor as it centers on offering manufacturers blueprints for quickly making inexpensive phones, providing its customers with everything from firmware to drivers and a qualified vendor list allowing OEMs to pick and choose necessary components already prequalified by MediaTek. In short, MediaTek focuses on building the low-cost turnkey solution platform to enable bursty applications usage probed by multiple manufacturers.

Thus, value investors should ask:

  • Does the business model – whether they are chip solutions to hospitals to drugs – have the capacity and intangible knowledge to cope with, and even benefit from, bursty situations? Is there a deep underlying self-reinforcing dynamics in the network? As Qualcomm gets better and better in its mastery of advanced LTE technology platform, the telco carriers have greater trust in them and have higher switching costs, which in turn enable Qualcomm to lock in its customers against new entrants and reinvest profits back into innovations in its LTE platform.
  • Are there unwieldy bureaucratic hurdles, rules, checks and politics that hinder flexible and speedy response (which is what the Obama administration is accused of in its poor handling of the Ebola outbreak)? People who study how complex systems work or fail have long known that introducing new or additional rules often increases the odds that the people operating the systems will make more mistakes. Complex requirements increase the confusions in an intrinsically error-prone bureaucratic system and lower the initiative and energy to carry out innovations.
  • Is there scaled down distributed intelligence and responsibilities to sense and respond to the bursty threats and opportunities happening at nonlinear rates?
  • During times of lull activity, what do the entrepreneur and management learn and work on? Are they complacent or listless and tired?

Bursts, the deep structure of empirical reality, enable value investors to better understand the process that governs complex wide-moat networks and to understand the processes that cover human activity patterns, which hopefully can help value investors to have a fresh perspective on nonlinear growth and sustained value creation.

Learn more about The Moat Report Asia.

Berkshire Hathaway and Coca-Cola: We Have Been Here Before

Editor’s note: Larry’s book focuses on Berkshire’s 50 main wholly owned businesses, but also has brief passages on some of the companies in which Berkshire owns a minority position. The following is his passage on The Coca-Cola Company, pages 181-182.

Muhtar Kent and Warren BuffettBefore presenting the passage, a related note: when activist Coke shareholders (like David Winters) agitating for change complain about their futile efforts to lure Buffett into their fight, remember that Buffett works for Berkshire and its shareholders, not for Coke or its shareholders. While activism might boost Coke’s shareholders today, Berkshire’s patient quiet approach has boosted Berkshire’s shareholders year in and year out. For example, the model of quiet patience is precisely why Berkshire was able to reap such enormous gains from its investments during the 2008 financial crisis.

With sales in 2013 reaching $50 billion, the Coca-Cola Company is about as powerful a brand and company as can be, at home in Atlanta and around the world. Its success is due ultimately to a single product, originally a mixture created in 1886 by pharmacist John Styth Pemberton of sugar, water, caffeine, and cocaine (extracts of the coca leaf and the kola nut). In 1891, fellow pharmacist Asa G. Candler gained control of the product and initiated steps to launch the business. Among early moves was the first bottling franchise in 1899, an investment in local partnerships that became the scaffolding to build the brand: the company makes concentrate for sale to bottlers that mix it into liquid form and package it for sale to retailers. Other early milestones include the 1905 removal of cocaine from the mix and the 1916 creation of the unique contour-shaped bottles.

In 1919, Candler sold the company to Ernest Woodruff and an investor group which promptly took it public. In 1923, Ernest’s son, Robert Winship Woodruff, became president, a position he held through 1954, followed by serving as a director through the 1980s. Coke went global in the 1940s, establishing bottling plants near the fronts in World War II. With the stewardship of CEO William Robinson, in 1960, Coke acquired Minute Maid Corporation and in 1961, launched Sprite, the first of many brand expansions it would continue as it developed its product line of five hundred different drinks.

Under Paul Austin during the 1970s, despite reasonable sales, the company stumbled from one problem to another. Bottlers felt misunderstood, migrant workers in the Minute Maid groves were mistreated, environmentalists complained about its containers, and federal authorities challenged the legality of its franchise bottling system. Although Austin launched Coca-Cola into China and was responsible for other international achievements, critics say he neglected the flagship brand by diversifying into water, wine, and shrimp. With investors punishing the stock, the board finally ousted Austin in 1980, replacing him with Roberto C. Goizueta, Coca-Cola’s most famous CEO, serving from 1981 through 1997.

A legendary businessman and Wall Street darling, Goizueta returned to basics, focusing on the Coke brand and rejuvenating Coca-Cola’s traditional corporate culture of product leadership and cost management. During his tenure, Goizueta led the company to widen profit margins from 14 to 20 percent, boosted sales from $6 billion to $18 billion, drove profits from less than $1 billion to nearly $4 billion, and pushed returns on equity from 20 to 30 percent.

These measures were propelled by expanding Coke’s global network and the successful 1982 launch of Diet Coke. There were, of course, a few errors along the way. One, the lamentable 1985 birth and death of New Coke after it flopped with consumers, simply revealed the power of the core brand. Another was Coca-Cola’s 1982 acquisition and 1987 divestiture of Columbia Pictures after it had become disillusioned with the inscrutable ways of Hollywood. But this diversion simply proved the durability of Coke’s corporate culture—and was also lucrative, as the company paid $750 million for Columbia and sold it for $3.4 billion.

Berkshire Hathaway Annual MeetingIn 1988 and 1989, Buffett heralded Goizueta’s achievements when Berkshire bought the large block of Coca-Cola shares it still owns today and Buffett joined the board (on which he served until 2006). After Goizueta’s sixteen years, however, the company’s CEOs came and went more like temps, four in thirteen years. But despite mistakes, none could fail so spectacularly as to ruin the Coke brand or Coca-Cola’s corporate culture. Douglas Ivester (1997–2000) swapped the contour-shaped Coke bottle for a larger unfamiliar variant, compromising a valued trademark. Douglas N. Daft (2000–2004) fired large numbers of people, a slap in the face to the employee-centric culture that prided itself on lifetime employment.

Yet as Durk Jager’s stint at P&G taught, changing strong corporate cultures is not easy, and at Coca-Cola, successors quickly reversed course. E. Neville Isdell, who returned from retirement to right the ship, and Muhtar A. Kent, who took over in 2009, revived a decentralized structure and the professional style that Goizueta favored. They also understood the importance of international markets, especially in southeast Asia, where growth prospects remain strong. Kent celebrates Coca-Cola’s greatest tradition, epitomized by its history of using hundreds of bottling partners: being simultaneously global and local.

Coca-Cola has been a profitable investment for Berkshire—worth today twelve times what Berkshire paid for it. And Buffett’s son Howard has been on its board since 2010. The company appears to be prospering, and the Buffetts are bullish on it. Buffett and Munger continue to give the brand free advertising by sipping it on the podium at Berkshire’s annual meetings. But skeptics wonder about the durability of its economic characteristics in a health-conscious world turning away from carbonated beverages.

Case Study: Telenav

telenavTelenav develops navigation software. Historically, the company generated most of its revenue from partnerships with wireless carriers such as AT&T, Sprint, and T-Mobile. Key suppliers of maps were TomTom and Navteq. Over the last couple of years, this traditional business segment has dwindled due to the rise of smartphones and increased competition from Google, Apple and Microsoft. In an attempt to diversify, Telenav aggressively pursued two alternative growth areas: in-built automotive navigation systems and ad-driven apps based on open source maps. Over the last two years, the company has become a key developer of automotive navigation systems for Ford and a Top 5 OEM. Over the last twelve months, Telenav has secured top engineering talent and assets regarding Open Street Maps (OSM, the Wikipedia of maps): Steve Coast, the founder of OSM, and Skobbler, the highest-rated and most popular OSM app developer. The company has around 900 employees and is headquartered in Sunnyvale, California.

At the time of purchase, the company was trading close to its net cash level and at just 1-2 times average free cash flow of fiscal years 2011-2013. I expected Telenav’s cash burn to peak at around $20 million in 2015 and then to recover given its turnaround plan and convincing product pipeline. I believed the upside in case of a successful turnaround was far higher than the downside, which was limited given the company’s net cash balance. I expected (and still do) the new OSM-driven business model to yield higher returns of capital employed and provide a better business moat. It is widely accepted that intelligent mapping solutions will continue to grow in importance with a wide array of attractive earnings streams in search, personalized advertisement, mobility solutions and user intelligence. Telenav’s move towards OSM will lower the company’s cost base and increase the quality level of its services (e.g. through the introduction of crowd-sourced traffic updates).

telenav-logoHowever, when the company reported fourth quarter earnings on July 31, 2014, it revealed that it expected its cash burn to be higher at around $40-50 million in 2015 and its share count (despite ongoing buybacks financed out of the company’s substance) to increase due to dilutive stock-based compensation (about 10% of market capitalization). I decided to exit the stock after updating my thesis for the expected higher cash burn, lower cash balance and increased share count. Annoyingly, the stock rallied 50% in the weeks following my sale.

The above commentary is excerpted from the iolite Partners quarterly letter for Q3 2014.

Disclosure: This document does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product. Past results are no guarantee of future results and no representation is made that an investor will or is likely to achieve results similar to those shown. All investments involve risk, including the loss of principal.

Case Study: Cabcharge Australia

cabcharge-australiaCabcharge Australia Limited is engaged in taxi-related services and is also involved in bus and coach services through its interest in an associate. The company provides booking and dispatch services for various Australian taxi services, and its products include taxi management system software as well as mobile electronic payments systems. Cabcharge owns Black Cabs, Melbourne’s second-largest taxi company, as well as Newcastle Taxis and Melbourne’s Arrow Taxis. CDC, a joint venture formed between ComfortDelGro, one of the largest land transportation companies in the world, and Cabcharge, is recognized as the largest private bus operator in Australia and operates under brands that include Westbus, Hillsbus, Hunter Valley Buses in New South Wales and Eastrans, Westrans, Davis and Bender in Victoria. Together with ComfortDelGro, Cabcharge also owns CityFleet UK, a provider of account, booking and dispatch services for taxis and private hire vehicles in London, Edinburgh, Aberdeen, Birmingham and Liverpool.

At the time of purchase, shares of the company had traded down due to regulatory pressure (Western Australia had decided to cut Cabcharge’s surcharge for providing taxi payment services from 10% to 5%) and because of perceived long-term threats (essentially from Uber, a smartphone application that connects drivers with people who need a ride).

cabcharge-australia-logoIn my analysis, the impact of the regulatory change was quantifiable and not as severe as the headlines suggested. While I believe Uber offers a great service, I thought the market overestimated the speed of its impact on traditional taxi companies. Taxis are a heavily regulated market and many customers tend to be loyal out of convenience. For example, elderly people (a large customer segment) are likely to stick to traditional taxi companies for years to come. Lastly, it seemed the market failed to put the right value on Cabcharge’s highly profitable joint ventures with strategic partner ComfortDelGro, possibly as its earnings are reported below EBIT.

I exited the position when the stock reached my fair value estimate after it had rallied 35% in just six months, resulting in an annualized return of 89%.

The above commentary is excerpted from the iolite Partners quarterly letter for Q3 2014.

Disclosure: This document does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product. Past results are no guarantee of future results and no representation is made that an investor will or is likely to achieve results similar to those shown. All investments involve risk, including the loss of principal.

Thoughts on Portfolio Positioning

I have managed this portfolio for six years now and thought I would share a few thoughts on my investment approach and how it has changed over the last few years, along with the global market environment and many lessons learned. Although it is common to evaluate a manager’s investment skill based on past returns alone, I think it is more appropriate to concentrate on the “how” – his investment decisions and the reasoning behind them considering the information available at the time. Was the manager just lucky, did he just ride a trend, and how repeatable is his success going forward?

When I started out in the midst of the financial crisis in 2008, it was very easy to pick big, stable businesses at low valuations (meaning: low risk, high return expectations). For example, eBay was trading at less than five times free cash flow – at this valuation, while the risk of permanent capital loss was very small, the chance to generate returns greater than 20% was very high (either supported by cash generation or multiple expansion). I ended up buying a basket of stocks with a similar profile, some of them well-known names (eBay, Carrefour, Munich Re, Kraft Foods, Starbucks, Walgreen, McDonald’s, Microsoft) but also smaller, lesser-known names (Orpak, Aspen Insurance Holdings, A.C. Moore, GFK, Paypoint).

By around 2011, markets were back to their pre-crisis levels and the rising tide had lifted most boats. The low-hanging fruit had been picked. As already mentioned in my last letter, many investors (Buffett disciples included) have since started paying up for companies. To justify higher prices, investors are increasingly talking about growth, hidden values (sum-of-the-parts valuations, restructuring potential) or financial gimmickry (refinancings, spin-offs, etc.). The more conservative folks talk about quality: quality of a business and quality of management. In their minds, high quality justifies a high price.

Having studied many portfolios from fellow value investors and having seen how many portfolios suffered severe losses of more than 50% in 2008, I’ve become very wary of paying a high price for anything. In my analysis, a substantial part of losses in value portfolios in 2008 was caused by holding on to stocks trading at high valuations – whether the underlying businesses were of high quality or not. Another question is what quality actually means. I noticed that people focusing on “quality” rather than intrinsic value often fail to account for the complexities of real life. As much as we all love wide moat businesses that keep growing with minimum capital requirements, it’s much easier to spot them in hindsight than to anticipate their success with foresight.

For example, while BMW – a darling in the European value community – is definitely a great brand with great products, it doesn’t come without risk. BMW’s top line is dependent on low interest rates and cyclical consumer demand, its ever-increasing leasing portfolio and leverage might bear risks (i.e. payment defaults, residual value-accounting), it is operating in an industry with global overcapacities, and its market valuation arguably looks rich if compared to its free cash flow generation over the last 10 years. A cynic might even say that BMW, rather than being a great car maker, has become a consumer bank with an attached auto assembly plant.

I could sum up several examples where a business’ perceived superior quality shows some weakness if thoroughly challenged. For instance, Tesco, considered almost an infrastructure-type of investment, is now unexpectedly struggling with competition from hard discounters such as Aldi. Coca Cola’s growth is exposed to the ongoing health debate and increasing competition from low-priced me-too competitors such as Soda Stream or no-name labels. Apple’s profits are heavily dependent on sales of a premium cell phone – a product subject to severe technological disruption and ever-changing consumer taste. In essence, even to the trained eye a company might look like a safe compounder – until it suddenly doesn’t anymore.

So, as global markets rose and the easy picks became rarer, I continued to invest in companies with low valuations – albeit of lesser prominence. My favorites became companies with high net cash levels and positive cash flows, those for which I assumed some safety net in the company’s assets or management’s quality at low valuations. This approach was essentially following the footsteps of investors I consider role models, who had made their most successful investments in option-type situations with asymmetric risk-reward characteristics. The idea was (and still is) that a portfolio of investments where the upside is significantly higher than the downside will do well over time, despite a few losers that are essentially built into the equation.

So far, the strategy has worked quite well. I also believe that the portfolio’s returns have been less correlated to the overall market development as the comparison with the MSCI World Index might suggest. Since I kept selling stocks when they became expensive, returns were driven by the underlying assets rather than market trends or sector rallies.

Still, I made a few costly mistakes that could have been avoided. In some cases, I attributed value where there was none, in others I just overpaid. Here are a few simple but important lessons learned:

  • Negative working capital can be a structurally cheap and efficient way to fund a business as long as it is stable or growing. However, any conservative valuation should treat it for what it is: leverage (which will become obvious in a restructuring situation).
  • Weak earnings quality can often be exposed by a rigorous analysis of capital expenditure and capital expenditure efficiency. For example, companies with long-life assets often show higher “EBIT” than the comparable (and arguably more relevant) cash flow measure “EBITDA less capex” – as can be explained by inflation, temporary maintenance underspending, costly technological upgrade or asset replacement requirements. In the media space, many companies report inflated earnings by overcapitalizing development, IT, R&D, or product licensing costs.
  • Beware of businesses operating in weak momentum environments (e.g. due to regulatory changes, industry overcapacities, technological disruption or product substitution), as this might lead to accelerating earnings and asset price erosion.

Most of my mistakes were caused by overpaying due to lack of experience or rushing into investments where I didn’t want to miss profit opportunities. In the future, I shall be more patient in waiting for truly exceptional investment opportunities. This goes along with the affirming realization that, despite an increasingly expensive market, these last few years offered plenty of attractive opportunities.

All that said, an old quote found new resonance with me: “Nobody ever got fired for buying IBM.” In other words: it’s easier to justify losses or underperformance when purchasing shares everybody knows and loves. The flipside is that it is also more difficult to market a portfolio of undervalued nobodies, as clients might make the error to perceive such a portfolio to be of higher risk versus a portfolio of “blue-chips” or “story” stocks.

Despite these challenges, iolite will continue to pursue an investment strategy that focuses on asymmetric risk-reward situations, where the upside potential is significant and the downside is protected at the valuation levels seen at the time of capital allocation, as this seems a reasonable thing to do. I am in it for the long term, and you should be too.

The above commentary is excerpted from the iolite Partners quarterly letter for Q3 2014.

Disclosure: This document does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product. Past results are no guarantee of future results and no representation is made that an investor will or is likely to achieve results similar to those shown. All investments involve risk, including the loss of principal.