We understand value investing to be the discipline of purchasing businesses which are priced below their real, intrinsic, theoretical or fundamental value and wait for the necessary time to elapse in order that a significant part of said value may be realised.We dedicate the majority of our time to research and study companies, to understand their business models and to calculate their fundamental value.
Magallanes understands value investing as a philosophy of life applied to investing. Some of the most relevant aspects thereof are as follows:
Alignment of interests:
We manage the money of our clients as if it were our own; in fact, a significant part of our own money is invested in the funds we manage. We co-invest with our clients.
We are patient and we believe that work well done is rewarded over time.
We work in strict compliance with a Code of Ethics which is present in each and every one of the aspects related to Magallanes, its clients, employees, partners and directors. Magallanes defines its basic attributes as integrity, dedication and knowledge. The latter two are of no use without integrity.
We believe that independent and extraordinary decisions bring about results which are equally extraordinary. It is not possible to differentiate oneself from the rest if we all make the same decisions. At Magallanes independent, original and well considered thinking is of utmost importance. We praise original, critical and non-consensus thinking. We do not accept generalised or consensus opinions, or in trends or thinking which lacks critical and reflective thought.
The majority of our time is spent identifying the value of the companies in which we invest.
The prices are provided by the stock market, which are prices which rarely coincide with the real value of the business.
The market is the subject of emotional and impulsive behaviours in the short-term, where price and value rarely converge. Rationality however appears over time and is when the price and value of the business approximate.
The continuous discrepancies between value and price, fruit of the emotional aspects of the market, generate significant investment opportunities.
Our experience demonstrates that the majority of the market players follow a process based upon emotions, time and perception. We are human beings and we are dominated by our emotions. Said behaviour generates market anomalies.
Long term success in investing has to do with the attitude of the portfolio manager at the time of selling or buying, and it completely depends upon his capacity to keep calm, rational and cool at all times.
We are investors, not speculators.
Speculation bears no negative connotation whatsoever, we simply believe that it is the most risky form of investment. A market player speculates when it purchases a company with the hope that its price goes up, it makes a “bet” on future expectations. An investor “invests” when it purchases a cheap company, and is less dependent upon the future, which is by definition uncertain and unknown.
We believe that a significant aspect of the profits of an investment resides in the purchase price, more than in the sale price.
We do not spend a lot of time trying to predict the future, by attempting to determine the exact trend or development of sales or profits of a company. Our time is dedicated to determining whether a business is being sold for less than what it is really worth.
In the game of predicting the future the worst possible result is to accurately predict outcomes, as this increases the sensation of self-confidence and reduces cautionary aspects.
Predictions generate expectations which, as a general rule, do not usually take place. This creates interference and uncertainty which may be taken advantage of by the intelligent and patient investor, which sells when everyone wants to buy and which buys when everyone wants to sell.
We believe that the only real risk is the permanent loss of capital.
We shall aim to prioritise the preservation of capital over and above the expectations of high returns if a significant possibility were to exist of losing the invested money.
The power of interest compounding over a protected amount of capital represents the most powerful combination for the generation of wealth over time.
We are conscious of the asymmetric effort which is required for the recovery of significant losses. A loss of -50% is not recovered by an increase of +50%, but rather by an increase of +100%. The efforts required are significantly increased the greater the loss, for example, in order to recover a loss of -25% we would require an increase of +33%, in order to recover a loss of -75% we would require an increase of +300%.
We feel responsible for your funds, and only through open and direct communication may we ensure that our clients feel that they are informed and taken into consideration at all times.
The communication and explanation of what we do, and why we do it, is one of the hallmarks of Magallanes.
We do what we say that we do, with detailed explications at all times.
Definitively, we communicate all of the information which we consider relevant and which we would like to receive, ourselves, if we were clients.
Likewise, we shall aim to resolve any errors with the minimum possible impact to our clients, and we learn important lessons from our mistakes.
We thoroughly enjoy what we do.
We are always keen to improve and to continuously learn new things.