We have one primary objective: To earn superior investment returns on our clients', and our own, capital without taking unnecessary risks.

Our strategy is to try to understand what a rational buyer would be willing to pay for 100% of a given company. Our valuation may focus on asset values, earning power, the intangible value of a company's "franchise" in its market, or a combination of these variables. We then try to buy shares of the company's stock at a significant discount to this "private market value". It is this discount that provides the "margin of safety" that minimizes the risk of permanent loss of capital.

While the relationship between price and intrinsic value is the central focus of "value investing" as taught by Benjamin Graham, we are also very attentive to certain qualitative factors. We seek companies with the following characteristics:

• A business we can understand. This eliminates many high technology companies.
• A business having some control over its own destiny by virtue of a niche or franchise that insulates it from competition and allows it to price its products adequately.
• A business that generates more cash than it needs to conduct its operations.
• A business having honest, intelligent management who treat shareholders as partners in the business, rather than necessary evils.

If a business satisfies these criteria, AND its stock is available at a very attractive price, we are interested.

The beauty of this approach is that it depends on common sense and patience rather than special sources of information or predictions of (essentially unpredictable) future events. Applied intelligently, it reduces the chances of permanent loss of capital, and has consistently produced good long-term returns.

Lest this process sound too simple, it is important to remember that investing is still more art than science, and we have very little control over short-term investment results. Emotions tend to determine stock prices in the short run, and our job is to take advantage of the irrational price changes that occur. Short-term declines can be great opportunities to invest capital, and periods of euphoria sometimes allow us to earn our returns sooner than expected.

We will sometimes seem to be out of sync with the Market, but the key is to be disciplined about the application of our investment criteria. When we have trouble finding stocks to buy at reasonable prices, we may hold significant cash reserves. The price of this discipline is sometimes missed opportunity, and we accept that.